Q1 2024 eXp World Holdings Inc Earnings Call

Unknown Executive: First, we delivered Q1 revenue of $5.3 million, which was above our forecast due to strong performance from the IoT category. Thanks to the higher revenue and favorable product mix, we reported positive non-gap gross margins for the first time in the company's history.

Q1 revenue of $5 $3 million, which was above our forecast due to strong performance.

From the Iot category.

And thanks to the higher revenue and favorable product mix.

We reported positive non-GAAP gross margins for the first time in the company's history.

Unknown Executive: Second, we completed the factory acceptance testing of our Gen 2 Agility line, and the vast majority of the machines are already in Malaysia, and the SAT is well underway, which is a site acceptance test. As a result, we're on track to produce our first battery samples of the EX1M technology this quarter. Now, I'd also note that the FAT for the high volume Gen 2 autoline is nearly complete.

Second.

We completed the factory acceptance testing of agenda agility line.

And the vast majority of the machines.

We're already in Malaysia, and SSD is well underway, which is a site acceptance test.

As a result, we are on track to produce our first battery samples of the <unk> technology this quarter.

Now I'll also note that the FFT for the high volume the Gen. Two other line is nearly complete.

Unknown Executive: And given that it's based on the exact same process kernels as agility line for the unique and challenging portions of our batter manufacturing process, such as the laser dicing and stacking, our yields are already at upwards of 95% in our Gen 2 machines. Big picture.

And given that it's based on the exact same process kernels as agility line.

For the unique and challenging portions of our battery manufacturing process, such as laser dicing and stacking.

Our yields are already at upwards of 95% in our Gen two machines.

Unknown Executive: Manufacturing is in a great place. We are confident we can scale the Gen 2 process given the amount of rigor we put into getting these qualification steps right. Now, let's talk about the customer program. Let's start with smartphones. The largest portion of the battery market in consumer electronics. We are deeply engaged with market leaders, given the value they see in our architecture to enable silicon and increase battery performance. As we talked about previously, our process has been to work with these OEMs to gather the specific requirements of the smartphone market and then develop a product that's tailored to the needs of this market. This is exactly what we have done with eX1M.

Big picture manufacturing is in a good place we are confident we can scale. The gen. Two process given the amount of rigor we put into getting this qualification steps right.

Speaker Change: Now, let's talk about the customer progress.

Speaker Change: Let's start with smartphones.

Speaker Change: Largest portion of the battery market in consumer electronics.

Speaker Change: We are deeply engaged with market leaders given the value they see in our architecture to enable silicon and increase the battery performance.

Speaker Change: As we've talked about previously our process has been to work with these Oems do gather the specific requirements for the smartphone market and then develop a product that's tailored to the needs of this market.

Speaker Change: This is exactly what we've done with the X one of them.

Unknown Executive: And I'm thrilled to update you that we have now begun producing samples of EX1M in Fremont for the initial test, which you can see on the cover of our shareholder letter is super exciting for us. Now, the samples of EX1M will go out shortly, and the customers are really eager to kick off the qualification of these samples with their products in mind for 2025 launch. What does this mean?

Speaker Change: And I'm thrilled to update you that we have now begun producing samples of EXL I am in Fremont for initial testing.

Speaker Change: Which you can see on the cover of our shareholder letter is super exciting for us.

Speaker Change: Now the samples of E X one of them will go out shortly and the customers are really eager to kick off the qualification of products of these samples with product with their product in mind for 2025 lunch.

Unknown Executive: And where are we with these customers? Now let's take a quick look at this slide. Now what I want to show you on this slide is basically the size of the smartphone business opportunity for us. The smartphone battery leadership opens a $12 billion opportunity for us. If you look at the top bar on the slide, you can see all the OEMs that ship, you know, around 1.2 billion smartphones in 2023. The top eight of them represent a billion units, which is 80% of the volume.

Speaker Change: What does this mean and where are we with these customers now lets take a quick look with this slide.

Unknown Executive: Now, of the 12 billion lithium ion battery TAM in smartphones, 9.5 billion is among the top eight. Collectively, they have produced 280 plus models of smartphones, which means an average smartphone unit volume of, you know, three and a half million units per model. So three or four models of these will take a full line of hours.

Speaker Change: No what I wanted to what I'm showing on this slide is basically the size of the smartphone is another opportunity for us the smartphone battery leadership opens a 12 billion dollar opportunity for analytics.

Unknown Executive: Now six of the top eight of these OEMs are going to receive samples of the eX1M smartphone battery from us. So that $7.5 billion of smartphone battery revenue is actually represented here. So we're in great shape, as you can see, with the market leaders, something that was a priority for me when I joined the company last year to focus on the largest part of the battery market. Now, customer interest has extended to conversations with OEMs about formalizing our relationship with them, as we started making progress over the course of the last year.

Speaker Change: If you look at the top bar on the on the slide you can see all the Oems that ship.

Speaker Change: Around 1.2 billion smartphones in 2023.

Speaker Change: The top eight of them.

Speaker Change: Present, 1 billion units, which is 80% of the volume now.

Speaker Change: Now of that 12 billion lithium ion battery Tam in smartphones.

Speaker Change: 9.5 billion is among these top eight.

Speaker Change: Collectively they produced 280 plus models of smartphones.

Speaker Change: Which means an average smartphone unit volume of $3 5 million units per model.

Speaker Change: So three or four models of this will take a full lineup of ours.

Speaker Change: Now six of the top eight of these Oems are going to receive samples from E X one of them in smartphone battery from us.

Speaker Change: So that $7.5 billion of smartphone battery them is actually represented here.

Speaker Change: So we're in great shape as you can see with the market leaders something that was a priority for me when I joined the company last year to focus on the largest part of the battery market.

Speaker Change: Now the customer interest has extended.

Unknown Executive: Some have expressed a desire to be the first to market, with products in 2025 and beyond. To that end, I am really pleased today to announce our first development agreement with the top five smartphone OEMs by volume. What this agreement reflects is a progression of our technology relationship with this company and a mutual plan from both the company and us to bring our technology into users' hands. A very exciting development that happened in the last quarter. And we see similar interest and collaboration from other customers who are also sampling to whom we are going to sample with our ES1M technology in the coming months. Our goal is very straightforward.

Speaker Change: Two conversations with Oems about formalizing our relationship with them as we started making progress over the course of the last year.

Speaker Change: <unk> express desire to be the first to market.

Speaker Change: With products in 2025 and beyond.

Speaker Change: To that end I'm really pleased today to announce our first development agreement with a top five smartphone OEM by volume.

Speaker Change: What is the agreement reflects is a progression of our technology relationship with this company and our mutual plan from both the company and to bring out our technology into user sense very exciting development that has happened in the last quarter and.

Speaker Change: And we see a similar interest in collaboration from other customers who are also willing would also sampling to who we're going to sample with Rds mono technology in the coming months.

Unknown Executive: We begin with a handful of SKUs from this group of customers, ramp eX1M to production 25, and then further differentiate with our EX2M, a battery that samples later this year for product launches in 2016, as I have highlighted in the past. There is secular demand for increased battery capacity with every smartphone generation, and Innovix may be the only company that can help these leading companies, leading smartphone OEMs, keep up with the demand for the higher and higher energy density needs of the batteries because of all the AI applications that are coming into the smartphone, particularly for all the on-device AI applications. So let's recap what products we plan to bring to the market on the next slide. We've shown this slide to you before.

Speaker Change: Our goal is very straightforward it began with a handful of Skus from this group of customers ran PX one into production in 'twenty five.

Speaker Change: Then further differentiate with reacts to EM battery that samples later this year for product launches in 'twenty six.

Speaker Change: As I have highlighted in the past.

Speaker Change: There is secular demand for increased battery capacity with every smartphone generation.

Speaker Change: And intermix may be the only company that can help these leading companies leading smartphone Oems keep up with the demand for the higher and higher energy density needs of the batteries because of all the AI applications that are coming into the smartphone, particularly for all of the on device applications.

Speaker Change: So, let's recap what products, we plan to bring to the market on the next slide.

Unknown Executive: eX1 is our current technology that we were sampling last year. eX1M is a new technology that we will be sampling this second quarter this year. And this technology is comparable in energy density to eX1M, which is quite a bit differentiated from all the cells shipping out there in the market. But we've made a few important advancements to this battery. We've increased our cycle life.

Speaker Change: Moving onto slide you before E X one is our current technology that we were sampling.

Speaker Change: Last year E X one of them is a new technology that we will be handling this second quarter of this year and this technology is comparable on energy dense gtx, one of which is quite a bit differentiated from all the sell shipping out there in the market, but we've made a few important advancements to this battery we've increased our cycle life, we increased our capability to charge.

Speaker Change: Fast both of which are very important in cell phone market.

Unknown Executive: We increased our capability to charge fast, both of which are very important in the cell phone market. Now we plan to sample EX2M, which is the generation after this, where we continue to make improvements in energy density, cycle life, and fast charge capability. Our R&D teams have already started working on eX3M, where we will further make improvements over eX2M in all the three vectors, energy density, faster charge, and so on. And our plan is to sample them in 2025.

Speaker Change: Now we plan to sample E X two M, which is the generation. After this where we continued to make improvements on energy density and cycle life and fast charge capability.

Speaker Change: Our R&D teams have already started working on E X P M.

Speaker Change: Third we will further make improvements overreacts to them in all these three vectors energy density faster charge and so on and we our plan is to sample them in 2025.

Unknown Executive: Once we bring a leading smartphone battery to market, our view is that this gives us the entitlement to win in other large parts of the battery market, namely IoT and computing. There is another $12 billion of TAM in those two markets. The reason for this is that the smartphone battery has the highest bar of all consumer electronics. The demands of on-device AI are very high. So it needs higher energy density, higher cycle life, people. People like to keep the smartphone for a while, fast charge rate, they like to charge it quickly and move on, and the highest levels of safety. It's a device you carry with you all the time.

Speaker Change: Once we bring a leading smartphone battery to market. Our view is that this gives us the entitlement to win in other large parts of the battery market, namely the Iot in computing.

Speaker Change: There is another $12 billion of Tam in those two markets.

Speaker Change: The reason for this is a smartphone battery.

Speaker Change: Has the highest bar of all bad alcohol consumer batteries. The demands of undue is very high so it needs higher energy density higher cycle life people people like to keep a smartphone for awhile fast charge that they'd like to charge it quickly and move on.

Speaker Change: Highest levels of safety, it's a device you carry with you all the time.

Unknown Executive: So when we produce a battery that meets these requirements, all the other markets are entitlements for us. This is actually something similar to, the same thing I saw at Qualcomm. When I was at Qualcomm, we built a significant mobile phone business, but very quickly, we were able to sell the Snapdragon into IoT businesses after that. Now it should also not be lost on anyone that the logos you saw on the previous slide of the smartphone OEM are the same logos of some of these customers who are actually leading in some of the IoT markets like wearables, tablets, and computers. So, proof positive for strategy is once we qualify with a smartphone customer and take our eXp-1M sample, they're not only qualifying us for smartphones but also for smartwatches and so on. To this point.

Speaker Change: So when we produce it badly that meets these requirements.

Speaker Change: All the other markets are entitlements for us.

Speaker Change: It is actually something same thing I saw at Qualcomm.

Speaker Change: And that was at Qualcomm, we built a significant mobile phone business, but very quickly we were able to sell the snapdragon into Iot businesses after that.

Speaker Change: Now it should also be in lot lost anyone the logos you saw in the previous slide of the smartphone Oems.

Speaker Change: The same logos of some of these customers who are actually leading in some of the Iot markets like Wearables and tablets and computers.

Speaker Change: So proof positive of our strategy is once we qualify it with a smartphone customer takes Audi is one example, there not only qualifying us for smartphones, but also for smart watches and so on.

Speaker Change: To this point.

Unknown Executive: We are also continuing to make inroads into multiple other IOT customers. We're applying our vertical markets philosophy, where we selectively engage with a few high volume opportunities with leading OEMs that are products that take advantage of the higher energy density and higher battery life of EX1M and EX2M. Presently, our commercial team is focused on select IoT design opportunities for both 1M and 2M, with product launches targeted in 2025 and 2026 for high-energy energy progress, and high-energy batteries. So some really meaningful progress here.

Speaker Change: We are also we are continuing to make inroads into multiple other Iot customers, we're applying our what legal markets philosophy, where we sell actively engaged with a few high volume opportunities with leading Oems that are products that take advantage of the higher energy density and higher battery battery battery performance of E X one of them in the X to them.

Speaker Change: Presently our commercial team is focused on select Iot design opportunities for both one of them and do them with product launch is targeted at 25 and 26 for high urgency progress higher density batteries. So some really meaningful progress here.

Unknown Executive: Now, as we look forward, we're approaching some key milestones this quarter. As production begins in Fab 2, and we get samples of our EX1M going out to customers, now let's take a look at our scale-up strategy. We've shown this slide before.

Speaker Change: Now as we look forward, we're approaching some key milestones this quarter.

Speaker Change: As production begins in fab two and.

Speaker Change: And we get samples are already excellent I'm going out to the customers now, let's take a look at our scale up strategy.

Speaker Change: We've shown this slide before.

Unknown Executive: Q224 is when we're going to be sampling our first EX1M batteries from our agility line to some of the smartphone customers and also some IoT customers. The second half of 24 is when our Fab 2 will get ready for production. And in Q4 of 24, we expect to sample the EX2M, the next generation of the battery. Now that takes more, you know, and people take some more time to qualify that, and we expect that to launch to production in 26 in 2025.

Speaker Change: Q2, 'twenty four is when we're going to be sampling our first E X one batteries from our agility line to some of the smartphone customers and also some Iot customers.

Speaker Change: Second half of 'twenty four is when our fab two will get ready for production.

Speaker Change: And Q4 of 24, we expect to sample the <unk> the next generation of battery.

Speaker Change: Now that takes what it will take some more time to qualify that and we expect that the largest production in 26 in Q in 2025.

Unknown Executive: Our goal is to launch multiple smartphones and also IoT customers with our EX1M battery. Now, what does scale look like when we get to launching multiple products with multiple customers in the coming years? These are slides that we haven't shown before.

Speaker Change: Our goal is to launch multiple smartphones and also Iot customers.

Speaker Change: With already excellent and battery.

Speaker Change: Now what does scale looked like when we get to launching <unk>.

Speaker Change: Multiple products with multiple customers in the coming years.

Unknown Executive: Our R&D, This is a slide about the smartphone production line unit economics. Our manufacturing R&D team has been very busy at work to reduce the cost of our lines. Now we are targeting the CapExport line to be in the $60 million range in our years. And we've also targeted now with the experiments we've done to be able to get the throughput to be 1650 units per hour. What that does is each line has the capability of producing revenue of $150 million.

Speaker Change: There's a slide that we haven't shown before.

Speaker Change: Our R&D is the diesel side about the smartphone production line unit economics.

Speaker Change: Our manufacturing R&D team has been very busy at work to reduce the cost of our lines now.

Speaker Change: Now we are targeting the capex potline to be in the $60 million range in the out years.

Speaker Change: And we've also targeting now with the experiments we have done to be able to get the throughput to be 1600 50 units per hour. What that does is each line has the capability of producing our revenue was $150 million.

Unknown Executive: What we're finding is that as we produce higher and higher energy density batteries with better performance, there is the opportunity to increase the ASP because customers want a higher energy density battery because that will help them differentiate the products much better. At that point, we expect our cash growth margin to be in the 50% plus range, and we estimate the payback of each of these lines to be one year.

Speaker Change: What we're finding is that as we produce higher and higher energy density batteries with better performance.

Speaker Change: There is the opportunity to increase the S. B because the customers want a higher energy density batteries, because that'll help them differentiate the products much better.

Unknown Executive: So, very exciting future here as we get into scale of manufacturing. As you can see, we're making tremendous progress, and we have a very clear path and very attractive long-term financials as we scale this business. Now, none of this would be possible without the collective success of our global teams, from the operations team in Malaysia, readying our Fab 2, to the team in India, reducing our R&D cycle times, to the team in Korea, improving our coding capital.

Speaker Change: At that point, we expect our cash gross margin to be in the 50% plus and we estimate the payback of each of these lines to be one year, so very exciting future here as we get into scale of manufacturing.

Speaker Change: As you can see we're making tremendous progress and we're very clear path and a very attractive long term financials as we scale this business.

Speaker Change: None of this would be possible without the collective success of our global teams from the operations team in Malaysia, Readying, our fab to the team in India, reducing our R&D cycle times to the team in Korea and brewing recording capability there.

Unknown Executive: Based on this progress and our global taking advantage of our global footprint, we are now accelerating our plans to identify additional efficiencies as we scale to take advantage of this global footprint of our engineering teams and manufacturing teams. Our plan is now to reduce our fixed costs by more than a third, to more than $35 million annualized by this year. This significantly reduces our capital needs and accelerates our path to profitability. With that, I'm going to turn it over to Farhan.

Speaker Change: Based on this progress and our global taking advantage of our global footprint. We are now accelerating our plans to identify additional efficiencies as we scale to take advantage of this global footprint of our engineering teams and manufacturing teams. Our plan has now reduced our fixed costs by more than a third.

Speaker Change: I'd be more than $34 million annualized by this year end.

Speaker Change: This significantly reduced their capital needs and accelerates our path to profitability with that I'm going to turn it over to Brian.

Speaker Change: Okay.

Brian: Thanks Raj.

Brian: Okay.

Farhan: All the relevant financials are in the quarterly report and in the shareholder letter. So I'll kind of keep my comments at a high level and then provide the outlook.

Brian: All the relevant financials are in the quarterly report in the shareholder letter so I'll kind of keep my comments at a high level and then provide outlook.

Farhan: For Q1, we delivered revenue of $5.3 million, which was ahead of our expectations. And we also had our first positive non-GAAP gross margin, as Raj mentioned. The non-GAAP EBITDA came in at a loss of $26.3 million, better than the midpoint of our guidance. Non-GAAP EPS came in at a $0.31 loss, a penny better than the midpoint of our guidance.

Brian: For Q1, we delivered revenue of $5 $3 million, which was ahead of our expectations and we also had our first positive non-GAAP gross margin.

Brian: As Raj mentioned.

Brian: EBITDA the non-GAAP EBITDAR came in at a loss of $26 $3 million.

Brian: Better than the midpoint of our guidance.

Brian: non-GAAP EPS came in at 31 cents loss.

Brian: And even better than the midpoint of our guidance.

Farhan: We ended the quarter with $262 million in cash and equivalents. For Q1, the capex was $15 million, and we used about $35 million in operations. Our balance sheet remains strong, and with the reductions that Raj mentioned, it provides us with strong liquidity into 2026. As a reminder, we accelerated the depreciation of Fab 1 equipment as we converted it to usage for our product development. So in Q1, you see that the R&D expenses had about $18.5 million of accelerated depreciation.

Brian: We ended the quarter with $262 million of cash.

Brian: And equivalents.

Brian: For Q4, Q1, Capex was $15 million.

Brian: We used 30 for about $35 million in operation.

Brian: Our balance sheet remains strong and with the reductions that Raj mentioned it provides us strong liquidity into 2026.

Brian: As a reminder, we accelerated the depreciation of our fab one equipment.

Brian: We converted it to four usage for our product development.

Brian: So in Q1, you'll see that the R&D expenses had about $18 $5 million of accelerated depreciation.

Brian: This one occurred in Q2, and we expect to return to a normalized level of depreciation expense and operating expenses in Q2.

Farhan: This won't occur in Q2, and we expect to return to a normalized level of depreciation expense and operating expenses in Q2. And then we should see a reduction in the back half of the year and into 2025 as we reduce our spending in high-cost geographies, as Raj had mentioned. And now for our guidance. For the second quarter of 2024, we forecast revenue between $3 to $4 million and adjusted a bit the loss of $26 to $32 million and a non-gap EPS loss of $0.22 to $0.28.

Brian: And then we should see a reduction.

Brian: In back half of the year and into 2025, as we reduce our spending in high cost geographies as Raj had mentioned.

Speaker Change: Now for our guidance.

Speaker Change: For the second quarter of 'twenty 'twenty, four we forecast revenue between $3 million to $4 million.

Speaker Change: Adjusted OIBDA loss of 26% to $32 million.

Speaker Change: And our non-GAAP EPS loss of 22 to 28 cents.

Farhan: As we highlighted on the last call, Q2 tends to be the seasonally low quarter for the battery business that we acquired last year, and we expect strong revenue growth from the Q2 level in the back half of the year. With that, I'll now turn to Raj.

Speaker Change: As we have highlighted on the last call Q2 tends to be the seasonally low quarter.

Brian: For the battery business that we acquired last year, and we expect strong revenue growth.

Brian: From Q2 level in the back half of the year with that I'll now turn to Raj.

Raj: Thank you, Farhan. As you can see, we have a very, very busy quarter ahead of us as we begin production in Malaysia and begin getting our eX1M samples out of the door to our customers. Customer enthusiasm is very high, and our relationships continue to grow stronger. On that note, we have a number of customers in the middle of scheduling visits to our Fab 2 in Malaysia over the summer, and we are planning to have a grand opening of our factory with all the key constituents, customers, and investors in about the August timeframe.

Raj: Thank you for that and as you can see we have a very very busy quarter ahead of us as we begin production in Malaysia and begin getting our E X one of them samples out of the door to their customers customer enthusiasm is very high and our relationships continue to grow stronger.

Raj: And that not we have a number of customers.

Brian: In the middle of our scheduling visits to our fab two in Malaysia, or the summer and we are planning to have a grand opening of our factory with all the key considerations customers investors in about August timeframe.

Raj: We'll plan to share more details later on. It should be a very exciting event. We are very excited to showcase this facility. I was in Malaysia recently, and it's really phenomenal what the team there has done, and it'll be awesome to showcase it to our customers and investors. With that, we can go to questions now. Operator?

Brian: We'll plan to share more details later on should be a very exciting event.

Brian: We are very excited to showcase its facility and I was there in Malaysia recently, and it's really phenomenal what the team there has done.

Brian: And it'll be awesome to showcase it to our customers and investors.

Brian: With that we.

Speaker Change: You can go to questions now operator.

Operator: We'll now begin our Q&A session. Please note this call is being recorded. If you'd like to ask a question, please use the raise your hand feature on your screen. If you've dialed in via phone, use star 9 to raise your hand.

Speaker Change: We will now begin our Q&A session. Please note this call is being recorded if.

Brian: If you'd like to ask a question. Please use the Raytheon feature on your screen, if you've dialed in via phone you star nine to raise your hand.

Operator: Questions will be answered in the order they are received. Please ask one question and one follow-up question at most. We'll now pause for a moment to assemble the queue. Our first question will come from Mark Schroeder of William Blair.

Brian: Questions will be answered in the order they are received please.

Brian: Please ask one question and one follow up question Atmos.

Brian: We'll now pause for a moment to assemble the queue.

Brian: Our first question will come from Mark Streeter of William Blair.

Brian: Yeah.

Mark Schroeder: Hey, team. This is Mark speaking for Jed Dorsheimer. Congratulations on the JDA. That's great news. A nice surprise for us. Speaking of them, I know that the target is for a 2025 launch, but does that give you any indication on when you'll need to see a PO to achieve that timeline?

Mark Streeter: Hey, Jamie this is mark on for Jed door Schirmer, Congrats on the J D. H, that's great news and nice surprise for us.

Mark Streeter: Speaking of them and I know that.

Mark Streeter: The target is for 2025 launch, but does that give you any indication on when you'll need to see a P O to achieve that timeline.

Unknown Executive: Yeah, the question is on the PO for the launch in 2025. You know, in consumer electronics, typically the POs, you know, I've been in this business for a long time.

Jamie: Yeah. The question is on the P O for a for the launch in 2020 five.

Jamie: Electronics typically the peers you know I've been in this business for a long time typically appears have placed a couple of months before production.

Jamie: And so from now we're going to give them samples they are going to qualify the samples and then give us some feedback and then we were going to get from them. The exact battery size that they actually.

Unknown Executive: Typically, the POs are placed a couple of months before production. And so from now on, we're going to give them samples. They're going to qualify these samples, and then give us some feedback. And then we're going to get from them the exact battery size that they actually need to go into a phone. Once they decide on the phone model, then we give them samples in that exact size. Then they go through some more rounds of qualification on that phone.

Jamie: Need to go into a foreign bed once they decided the phone model then when do you give them samples in that exact size then they go through some more rounds of qualification within that phone and then when the phone passes all the EBIT bvd all the tests and it gets closer production, that's when we actually get the appeal.

Jamie: So I'd say it really depends upon the launched a couple a couple of months before lunchtime, So I'd say second half.

Unknown Executive: And then when the phone passes all the EVT, PVT, all the tests and it gets close to production, that's when we actually get the PO. So I'd say it really depends upon the launch a couple of months before launch time. So I'd say second half of next year, early, I mean, like summer to second half, probably.

Jamie: Of next year early to I mean, like it's somewhat of a second half probably.

Mark Schroeder: Got it. Thanks for the color.

Speaker Change: Got it thanks for the color and for the follow up.

Speaker Change: Asking another one here.

Unknown Executive: And for the follow-up, I'll ask another one here... So it seems as though you're using a land and expand model with these customers, right? Do they all have many different tiers of performance? Do you think that the customer is looking to get you in as a trial in the top, top tier form? Or is there not? Do you think you can be in multiple models by the end of 2026 with this customer?

Jamie: So it seems as though you're using a landed ex land and expand model with with these customers. They all have many different tiers of performance do you think that the.

Speaker Change: Customers looking to get you into a trial in the top top tier storm or is there do you think it can be in multiple models by the end of 2026 at this customer.

Unknown Executive: Yeah, again, like I said, I think we are sampling multiple customers. We've just closed a JDA with one of them, you know, what I announced here is a JDA with one of them, the development agreement with one of them, but we're working with multiple ones.

Jamie: Yeah again like I said I think we are assembling multiple customers. We've just closed the J D with one of them.

Jamie: What I am serious video with one of them development agreements one of them, but there were working with multiple one of multiple ones.

Unknown Executive: Typically, my experience with what happens in smartphones, you know, from what I've done in other companies, is that they put you in a model, they see how that is, and before they put you in the model, there is a battery evaluation team that makes sure that they're comfortable with the battery and where it goes. You now become one of the chosen battery vendors for a platform. So it starts with one model, but once you're in that, once you're qualified by the customer, you make a model that quickly, in my experience, moves into multiple models across different tiers.

Jamie: Typically my experience and what happens in smartphones you know from.

Jamie: What I've done in other companies is that they put you in a model they see how that is and before they put you in a model that has a battery evaluation team that makes sure that they're comfortable to the battery and where it goes youre not become one of the chosen battery vendors for a platform. So it starts with one one model but.

Jamie: But once you're in that once you are qualified by the customer you make a model that.

Jamie: That quickly my experiences moves into multiple models across different tiers.

Unknown Executive: And again, people typically optimize the battery for energy density, for fast charge, and for cycle life based on the geography in which they're launching a model and the shape and size of the model. So my expectation is that once we get in, the next model should come much, much faster and with a much shorter qualification cycle.

Jamie: And again people typically optimize the battery for energy density for fast charge.

Jamie: But cycle life based on the geography in which they're launching a model.

Jamie: And the shape and size of the models. So my expectation is that once we get in the next model should come much much faster and much shorter.

Jamie: The qualification cycle.

Speaker Change: Great. Thanks Raj.

Colin Rush: Our next question will be from Colin Rush of Oppenheimer.

Jamie: Our next question will be from Colin Rusch of Oppenheimer.

Unknown Executive: Thanks so much, guys. You know, as you've gone through the equipment testing and gotten everything installed, and you've talked about, you know, kind of starting out at roughly a 65% yield sort of ratio. Can you talk about any surprises or, you know, positive, you know, incremental movement as you've gotten through the exceptions test and gotten everything installed?

Colin Rusch: Thanks, so much guys.

Colin Rusch: Got you the equipment testing.

Colin Rusch: And then everything installed and you've talked about you're kind of starting out at roughly a 65% yield sort of ratio can you talk about any surprises or.

Colin Rusch: You know positive incremental movement as you've gotten through the exceptions doesn't gotten everything installed.

Speaker Change: I'll, let Jay handle that when he's here sure Colin good question. Another F. N b as you have been saying is pretty rigorous process. We go through several different modules. The critical quality parameters, but also the marathon runs that you pitch of times and yield of course right. So.

Ajay: Let Ajay handle that one. He's here. Sure, Colin. Good question. Now, the FAT, as you have been saying, is a pretty rigorous process, right? We go through several different, not just the critical to quality parameters, but also the marathon runs, the UPH, uptimes, and yield, of course. So, no surprises. We are expecting high yields, and that's what we are getting at FAT. There will be more fine-tuning that we will continue to do through SAT, the Site Acceptance Test, but, generally speaking, I'm particularly quite excited about how the equipment has performed in the FAT cycles that we have run, and pretty much all the FAT for agility is done, and the yields are exactly where we expected, and then some. So, there are no surprises, only on the positive side.

Speaker Change: No.

Speaker Change: Rises we.

Speaker Change: Our expecting high yields and that's what we're getting there pretty there'll be more fine tuning that we will continue to do to Asap site acceptance test, but generally speaking.

Speaker Change: Clearly you're quite excited about how the equipment has.

Speaker Change: Has performed in the airfreight. These cycles that we are running at pretty much most all live or D for agility is done.

Speaker Change: The yields are exactly where we expected and then some so no surprises only on the positive side.

Unknown Executive: And then with customer engagement, obviously, you guys are getting, you know, deeper and more intimate with these customers. The performance specs, I'm sure on these phones, are changing very quickly. Raj, can you talk a little bit about the cadence of that performance and what they're demanding of the phones? You know, and how quickly that's changing as we start to see generative AI become a much bigger part of some of the future growth for phone functionality. Yeah, but what we're not

Speaker Change: Excellent and then with the customer engagement and obviously you guys are getting deeper and more intimate with these customers.

Speaker Change: The performance specs I'm sure on these phones are changing very quickly Raj can you talk a little bit about the cadence of that performance and what their demand in the phones.

Speaker Change: And how quickly that's changing as we start to see generative AI has become a much bigger part of some of the future growth further functionality.

Unknown Executive: Yeah, what we're noticing is that customers want higher and higher energy density, for one. And secondly, they're asking for batteries with higher and higher capacity, you know, in terms of 6000 milliamp hours and higher. You know, I think the reason for that is simply that, you know, the gen AI just consumes battery like crazy. And, you know, when they start using these apps, I think the last time I showed some data on YouTube was a chat GPT versus now Delhi and so on clear indication from all our customers that they want more energy density, larger batteries, and an ability to charge them quickly and in different shapes.

Raj: Yeah, what what we're noticing is that.

Raj: Our customers want higher and higher energy density for one and secondly, they are asking for batteries with more higher and higher capacity in terms of six.

Raj: <unk> 6000 million borrowers and higher.

Raj: You know I think the reason for that is simply that.

Raj: The journey is just the battery consumption is like Crazy and.

Raj: When they start using these apps I think last time I showed some data on Youtube, what's the strategy P D versus now daily and so on clear indication from all our customers that they want.

Raj: <unk> energy density larger batteries.

Speaker Change: And the ability to charge it quickly.

Speaker Change: And different different ships, but.

Unknown Executive: The unfortunate reality is the battery industry hasn't kept up for many, many years, and that's why when we come and offer a higher energy density battery, the timing is really good, because now is when they actually really need it. And this is the time that we are coming up with a great battery.

Speaker Change: The unfortunate reality is the battery industry Hasnt kept up for many many years and.

Speaker Change: That's why when we when we come and offer a higher energy density batteries. The timing is really good because it always when they actually really need it and this is the time that we are showing up with a great battery.

Speaker Change: Okay. Thanks, guys.

Bill Peterson: Our next question will be from Bill Peterson of JPMorgan.

Speaker Change: Our next question will be from Bill Peterson of J P. Morgan.

Unknown Executive: Yeah, hi, good afternoon. Thanks for taking the questions. In the technology and product section of the short letter, you mentioned you're working with two leading smartphone OEMs on the launch for next year. Is one of these actually in this development agreement, or is that a separate thing? That's the first part of the question, but the really, the crux of the question is, you know, what's the extent of the relationship with the second question?

Bill Peterson: Yeah, Hi, good afternoon, thanks for taking the questions and the technology and products section in the shower. A letter you mentioned youre working with two leading smartphone Oems are launched for next year.

Bill Peterson: It's one of these actually the in this in this development agreement or is that a separate thing that's the first part of the question but.

Speaker Change: But really the crux of the question as you know.

Speaker Change: What's the extent of the relation with the second question and then you mentioned your for others to receive samples presumably this year or next year is there a potential upside to the two smartphone customer launches.

Unknown Executive: And then you mentioned you have four others to receive samples, presumably this year or next year. Is there a potential upside to the two smartphone customer launches in terms of revenue generation in 2025, or are the rest of the customers you're sampling more like 26?

Speaker Change: In terms of revenue generation in 2025 are really the rest of the customers you're sampling or more like 26.

Unknown Executive: Yeah, I mean, from my experience and how these things typically work. Typically, in smartphones, you know, we mentioned one of the top OEMs that we're working with, then we're sampling another one and another one. So we will sample, you know, like six of the top eight so far that we have planned. And again, these conversations are going on, you know, so people keep asking us for more and more as we get these samples out.

Speaker Change: Yeah, I mean, so I'll I'll I'll speak to it from my experience and how these things typically work.

Speaker Change: Typically in smartphones.

Speaker Change: We mentioned one of the top Williams said were working with then we're sampling another one and another one so we will sample like six of the top eight so far that we have planned and again discounters instead going so people keep asking us for more and more as we get get the samples out.

Unknown Executive: You know, and what happens then is some customers may decide, may, you know, their qualification may go faster because they may decide to put it in a particular phone; they can qualify faster. Some customers may be a little bit later.

Speaker Change: And what happens then is it.

Speaker Change: It's a you know some customers may decide their.

Speaker Change: You May go faster because they may have decided to put us in a particular phone. They can qualify faster some customers may be a little bit later.

Unknown Executive: So it's hard to tell exactly how many will be in production next year. But you also have to realize we have limited capacity, so we have to modulate that a little bit with how many we can sell. I think it's possible it could be more than two, it just depends on how the qualifications go.

Speaker Change: So it's hard to tell exactly how many will be in production next year, but you also don't realize we have limited capacity. So we have to modulate that little bit with the with how many we can sell to and.

Speaker Change: So.

Speaker Change: I think it's possible it could be more than two it just depends on how the qualifications go.

Unknown Executive: Yeah, and my follow-up is actually kind of related to that. So I guess for this year, we should assume you're going to have your own high volume line. Is that line still more than 1350 UPH, which I think 9 million units support? Or can this existing line already do up to 1650, which I guess would imply more like 11 million units? I'm just trying to understand if that's just what we should assume for your volumes for the foreseeable future.

Speaker Change: Yes, my follow up is actually kind of related to that so I guess for this year was you assume youre going to have your your your high volume line is that line is still more than $13 50 U P. H I think 9 million unit support or can this existing line already do up to 16 testing, which I guess within for more like 11 million units just try to.

Speaker Change: Understand.

Speaker Change: What we should assume for your volumes for the foreseeable future and then kind of related I mean, when when at this point do you think that we should consider it putting more lives into the system at this sort of $60 million.

Unknown Executive: And then, you know, kind of related, I mean, when, when at this point do you think that we should consider putting more lines into the system? At this sort of 60 million per clip, which is, I presume, a 25 time frame, or how should we think about the CapEx cadence for this year and next year?

Speaker Change: Presumably the 25 timeframe or how to think about the capex cadence for this year and next year.

Unknown Executive: So I'll let Ajay handle the first part, and I'll talk about the second part on the second line. Sure.

Speaker Change: So I'll, let I'll, let Jay handle the first part and I'll talk about the second part of it in a second line sure. The first line is just as a reminder, as we said it is a universal line, which can be adapted very quickly.

Ajay: Sure. The first line, just as a reminder, is, as we said, it is a universal line that can be adapted very quickly to the smaller cell size and to the larger cell size. So we have been talking about that. So you can expect 1350 UPH. We have clocked it with marathon runs on this line at 1350 at FAT, which is what, you know, the HVM FAT is also underway, as you know, with, you know, so 1350, nine and a half million batteries a year for the first line. That is how we should model it. From the second line onwards.

Jay: To the smaller cell sites for the larger cell size. So.

Speaker Change: Talking about that so you can expect 13 50 U P. H, we have clocked it with marathon runs on this line of 13 50 electricity.

Jay: Which is what the atrium effort is also underway as you know with you now.

Jay: So 13, 59, and a half million roughly batteries a year for the first line is how we should model it from second line onwards.

Ajay: Both things are happening. We are speeding up the line. We're removing some of the bottlenecks. We are looking at, you know, exactly how the machine is behaving in terms of what can be, you know, condensed, what can be combined, and that type of thing. And that's where we are getting 1350 to go up to 1650 and also cost reducing the line, as Raj talked about earlier in his speech.

Jay: It's both things are happening we are speeding up the line every morning to some of the bottlenecks.

Jay: Looking at you know exactly how to the machine it'd be hearing in terms of what can be.

Jay: Convinced what can be combined and that type of thing and that's where we are getting 13 50 to go up for 16 50.

Jay: And also of course really was aligned as Raj.

Jay: Talked about earlier in his presentation.

Unknown Executive: Yeah, so to add a little bit of color to the second line and so on, I think the first thing I want to mention is that as we have gotten deeper and deeper into building these lines and manufacturing, a line is not really a monolithic thing, right? So there's, you know, the first part of the line where we do dicing is zone one, the lasers, then there's the stacking, and then there is actually the putting it into the pouch and so on. There is a formation at the back end.

Jay: So it says that a little bit color to the second line and so on I think the first thing I want to mention is that as we have gotten.

Jay: Deeper and deeper into building these lines in manufacturing.

Jay: <unk> not really a monolithic thing right. So there's the first part of the line, where we do dicing the zone one with the lasers then there's a stacking and then there is actually the you know they are putting into the pouch and so on then there is a automation at the backend.

Unknown Executive: Each of these parts has a different lead time and a different amount of capacity that we need to put in. So what we are looking at right now is, you know, a really exciting piece of work, which I have a lot of experience with coming from places like Micron, is to figure out what the customer qualification is. How is that going? What's the demand? How is that shaping up?

Jay: Each of these parts has a different lead time and a different amount of.

Jay: The capacity that we need to put in so what we're looking at right now is you know.

Jay: What really exciting piece of work, which is which I have a lot of experience coming from places like micron is to figure out what is the customer qualification how's that going what's the demand how is that shaping which models are we getting into how many customers are coming in and then figure out which parts of the line how to be either earlier, which can be added later to make sure that we balance the lead time of the procurement.

Unknown Executive: Which models are we getting into? How many customers are coming in? And then figure out which parts of the line have to be ordered earlier and which can be ordered later to make sure that we balance the lead time of the procurement. But at the same time, we do it in such a way that the capacity ramps up in sync with the customer qualifications. So stay tuned for that as we work through it this year.

Jay: But at the same time, we do it in such a way that the that the capacity ramps in sync with the customer qualifications. So stay tuned for that as we work through this year.

Unknown Executive: Can Farhan speak to how to think about CapEx for this year and maybe high-level thoughts for the next year?

Jay: Just to confirm and speak to how to think about Capex for this year and maybe high level thoughts into next year.

Farhan: So yeah, like you look for this year, no change from what we have said before, just CAPEX for this first line, and then into next year, we will add it, it'll be tied together with how the demand shapes up and, you know, just related to how the qualifications go, and based on that, we will order the lines. It's probably too early; we don't guide CAPEX because you know it's flexible. We want to be flexible and maintain that flexibility.

Jay: So yeah like you I'll look for this year no change.

Jay: From what we have said before just Capex for this first line and then into the next year, we will it'll be tied together with powder demand shapes up.

Jay: And just.

Jay: Just related to her.

Jay: The quad.

Jay: Qualifications go and based on that we will auto.

Jay: Lines, it's probably too early we don't.

Jay: We don't guide on Capex, because it's flexible we want to be flexible and maintain the flexibility.

Unknown Executive: And the other thing is, as I mentioned, I think Ajay and his team have come up with a way to cost-reduce the line. So we need to make sure we order the right things in the right way. And because the first one is a universal line, we knew what we wanted to do there. We have the flexibility. But the second line on, you know, as it is smartphones we are going after, we can narrow that window down of the shapes that need to change. That gives us higher throughput, that gives us lower cost, and so on.

Jay: Yeah. The other thing is as I as I as I mentioned, I think Jay and his team have kind of a weird to construct the line. So we need to make sure. We are the right things in the right way and because the first one is if you don't watch the line. So we knew what we wanted to do there have the flexibility, but in the second line on.

Jay: As it is smartphones, we're going after we can narrow that window down of the ships that need to change that gives us higher throughput that gives us a lower cost and so on.

Bill Peterson: And I'll just add one thing, Bill, to your question. In terms of thinking about the cost of the line. In the 2026 timeframe, you should think of that as 60 million, and this year, obviously, the first line was a lot more expensive than that. In 2025, if we order it, it will be closer to 60, but it won't quite be there because not all the cost reductions would be projects will be completed by then.

Speaker Change: And I'll just add one thing.

Bill Peterson: Bill to your question.

Speaker Change: In terms of thinking about the cost of the line.

In the 2026 timeframe you should think of that.

60 million.

Jay: And this year, obviously line first line was a lot more expensive than that.

Jay: The 2025, if we order it will be closer to 60, but it won't quite be there because not all the cost reductions would be.

Bill Peterson: Projects will be completed.

Unknown Executive: Okay, thanks. That's clear. Thank you.

Speaker Change: Okay. Thanks, that's clear thank you.

Derek Soderberg: Our next question comes from Derek Soderberg of Cantor.

Jay: Our next question comes from Derek Soderberg of Cantor.

Derek Soderberg: Yeah, hey, guys, thanks for taking my questions. So just I've got a question on the shareholder letter, you guys were talking about the two smartphone customers in April, you produced the first internal samples. I'm curious beyond sort of the FAT and SAT associated with the equipment.

Derek Soderberg: Yeah, Hey, guys. Thanks for taking my questions. So just a I've got a question on the shareholder letter you guys were talking about the two smartphone customers in April what you produced the first internal samples I'm curious beyond sort of the F. A T in S E T.

Speaker Change: With your equipment or do you still need the past internal battery cell phone application before shipping samples this quarter.

Derek Soderberg: Or is it a scenario where once you get cheaper for the agility line, you're ready to ship samples I'm just wondering what what else do you have to do on the battery side the jump start shipping samples.

Unknown Executive: Do you still need to pass internal battery cell qualification before shipping samples this quarter? Or is it a scenario where, you know, once you get SAT for the agility line, you're ready to ship samples? I'm just wondering what else you have to do on the battery side to start shipping samples? Absolutely.

Unknown Executive: Yeah, absolutely. So, you know, look, there are two aspects of qualification. One aspect of qualification is, you know, making sure the machines are working right, like FAT, SAT, and so on. But then there is the testing of the battery to make sure that, you know, it is safe, and it goes through all the safety testing, and it meets the cycle life, and it meets the performance requirements, it meets the fast charge, and so on. So we are doing that now in parallel.

Speaker Change: Yeah, absolutely. So you know look there is two aspects of qualification one aspect of qualification is.

Unknown Executive: Making sure the machines are working right like I said D. S E T and so on but then there is the testing of the battery to make sure.

Unknown Executive: It is a safe and it goes through all of the consumer all the testing of safety and it meets the cycle life and it meets the.

Unknown Executive: Performance requirements and meet the fast charge and so on so we are doing that now in parallel and once we do that.

Unknown Executive: And once we do that, that's when we will ship the batteries, because what you don't want to do is ship the batteries without them being fully tested to the customers, because you don't want to see any surprises on the customer side when they test them. So you want to test it like how the customers test it, which is what has been really interesting for me is that we are now able to get all this test criteria of how they would actually test into InnoVix.

Unknown Executive: That's when we will ship the batteries because what you don't want to do is ship the batteries without being fully tested to the customers because you don't want to see any surprises at the customer site when they test. It. So you wanted to ask you like how the customers tested which is what's been really interesting for me is that we are now able to get all this task criteria of how they would actually test into analytics. So now we are testing them exactly like.

Unknown Executive: So now we are testing them exactly like how they would test them after they got them. Once we've had all the tests and everything is good from the manufacturing line, they can go without that. But we first need to make sure the early samples go through all of those tests.

Unknown Executive: How they would test after they got them once you pass all the tests and everything is good from the main a manufacturing line. They can go without that but we first need to make sure that early samples go through all of that test.

Derek Soderberg: Got it. And then, as my follow-up question, I'm curious what the reasons were for signing a development agreement with you guys. You know, what were the reasons that that specific OEM had for signing today? Was it something they finally felt comfortable with on the production side? Was it just a little bit more time working with your battery technology?

Speaker Change: Got it and then as my follow up I'm curious what the reasons were.

Derek Soderberg: Signed a development agreement with you guys what were the reasons that that specific OEM had offer signing today wasn't something they finally felt comfortable with on the production side or was it just a little bit more time working with your battery technology I'm curious if you could talk about that and then how do you think there's some potential for this customer to provide fund.

Unknown Executive: Curious if you can talk about that and then, you know, do you think there's some potential for this customer to provide funding for production someday? If you guys were to sort of hit a certain criteria with the technology or production, I was curious if you could share some more info on that deal. Thanks. Yeah, absolutely. So, you know, we gave

Unknown Executive:

Unknown Executive: For production Someday you know if you guys were sort of hit a certain criteria with the technology or production I was curious if you could share some more informative.

Unknown Executive: Yeah, absolutely. So you know, we gave many of these customers early samples from our Fremont line, which I mentioned before. We will give them small samples, they're testing them, they're in different stages of testing. They've gone through most of that testing now, and they see what they're able to get. They came, and many of these customers came and visited us in Fremont and saw how we manufacture the batteries, convinced themselves about the viability of the manufacturing process.

Unknown Executive: Yeah, absolutely. So you know we we gave many of these customers early samples from our Fremont language I've mentioned before we will give them a small samples they are testing them, they're at different stages of testing they've gone through most of the testing now and they see what they're able to get there came in many of these customers came and visited us in Fremont and saw all the matter of fact.

Unknown Executive: And then, and then they felt like they wanted to work closely with us to actually further optimize the battery so that it works well in their phone models. Because you got to remember, every one of these customers uses the battery slightly differently, right? And I think that is something that's not so obvious from outside.

Unknown Executive: The batteries headwinds themselves about the viability of the manufacturing and then and then they felt like.

Unknown Executive: They wanted to work closely with us to actually even.

Unknown Executive: Further optimize the battery so that it works well in their phone models, because you've got to remember every one of these customers use the battery slightly differently and I think that's something that not so obvious from outside people don't just take a battery and slap it on the phone so they kind of figure out how do their fast charge what algorithm to use your fast charge, how much energy dense did they use.

Unknown Executive: People don't just take a battery and slap it in the phone. So they kind of figure out how to fast charge, what algorithm to use to fast charge, how much energy density they use, and how it works at different temperatures and, you know, what size they keep and what different shapes they use. So there's a lot of proprietary know-how in these customers and how they use the battery.

Unknown Executive: How does it work at different temperatures and.

Unknown Executive: What size do they keep and what different upshot shape that they use so there's a lot of proprietary knowhow at these customers and how they use the battery what does the agreement does is it allows them to share with us all the information so that we can customize our batteries to their actual specifications and that's super exciting because now we're actually building something that.

Unknown Executive: What this agreement does is it allows them to share with us all that information so that we can customize our battery to their actual specifications. And that's super exciting because now we're actually building something that, when it's done and works, will fit in the particular phones that they are looking at. And I expect similar things to happen with other customers.

Unknown Executive: When it's done and works it will fit in the particular phones that they're looking at and I expect similar things to happen with other customers.

Unknown Executive: Our next question comes from Anand Braha of Loop Cattle Markets.

Speaker Change: Our next question comes from a nonprofit <unk> of loop capital markets.

Anand Braha: Yeah, hey, thanks, guys. Yeah.

Anand Braha: Yeah, Hey, Thanks, guys Yeah. Good afternoon, thanks for taking the questions.

Anand Braha: Congratulations on the progress.

Anand Braha: It's really great to see.

Anand Braha: I guess.

Anand Braha: Good afternoon. Thanks for taking the questions. And congratulations on the progress. It's really great to see.

Anand Braha: Just I guess sticking with capital can you can you walk through.

Anand Braha: Uh huh.

Unknown Executive: Um, I guess Raj, just stick with capital. Can you walk through, like how you're thinking about raising capital? And I guess Farhan gave some context by year, you know, how to think about capex per line in the coming years. But like, how should we think about timing, and what are the various methods that you have to raise capital with? And I have a quick follow-up. Thanks.

Anand Braha: Like how you're thinking about raising capital and I guess Baja engaged in context.

Unknown Executive: By year, how to think about Capex per line in the coming years.

Speaker Change: But like how should we think about timing and what are the various methods that you have to raise capital with an adequate follow up. Thanks, Yeah. I think the previous question I didn't answer the second part.

Unknown Executive: Yeah, I think the previous question I didn't answer the second part, as we discuss these agreements with customers, we are clearly getting offers from them to see what they can do financially with us to actually get to the next level, so those conversations are also happening, and We're also talking to some governments about that. So I let Farhan add more color to it. But yes, those things are happening now as we make more progress on our batteries.

Unknown Executive: As we discuss these agreements with our customers. We are clearly getting offers from them to see what can they do financially with us to actually get to the next level. So those conversations are also happening and we're also talking to some government about that so I'll, let farhan add more color to it but yeah.

Unknown Executive: Those are happening now as we make more progress on our batteries.

Farhan: So, you know, in terms of funding for the lines, I don't think it's a, it's going to be a big challenge once we have The Qualifications and the customers on the other side ready to buy the batteries. And as Raj mentioned, we have customers that have expressed, even without asking, a desire to pay, if needed, to make us successful and make the factories bring them in. So you know, those conversations are happening.

Unknown Executive: Yes.

Farhan: So in terms of the funding for the lines I don't think it's a it's going to be a big challenge of once we have the.

Farhan: The qualifications in the Bakken the customers on the other side ready to buy the batteries and as Raj mentioned, we have customers that have expressed.

Farhan: Even without asking.

Farhan: To be.

Farhan: If needed to make us successful and make the.

Farhan: Factories.

Farhan: Bring them up so you know that those conversations are happening we're also talking to.

Farhan: We're also talking to sovereign wealth funds and things like that to see if we can get more funding, where the stock is right now like you know it's not at a level where you know I can have support of the board to consider any further capital and we also don't feel like you know like that it's anywhere close to the price that we would consider raising capital here and you know with the actions that we have taken to reduce our cost we have a fairly long runway we would have made very dramatic cuts to our cost structure and so we can have long runway before we need to raise capital.

Farhan: Sovereign wealth funds and things like that to see if we can get more funding.

Farhan: Where the stock is right now like you know it's not.

Farhan: At a level where.

Farhan: You know I can have support of the board to consider any.

Farhan: For the capital and we also don't feel like you know like it's anywhere close to the price that we would consider raising capital here.

Farhan: With the actions that we have taken to reduce our cost and we have a fairly long runway, but you would have made very dramatic cuts to our cost structure and so we can have long runway before we need to raise capital.

Anand Braha: That's that's a great context, Farhan. Thanks. Thanks so much.

Speaker Change: That's great context. Thanks, Thanks, so much and a quick follow up is and maybe this Friday there is in the prepared remarks guys. There is some that's in the 90% yields.

Anand Braha: And the quick follow-up is, and maybe this is for Ajay, there is in the prepared remarks, guys, there is some mention of 90% yield at this point in time, I guess. Yeah, Farhan. I mean, Ajay. I thought you could sneak that in. But yes, just clarification of that, and then

Speaker Change: At this point in time, I guess, yeah, farhan sneak that in.

Anand Braha: But the date.

Ajay: Yes, just clarification of that and then are you still on instead.

Ajay: Sort of on track for 90% yields by by the end of the year with that.

Ajay: Yeah, Yeah. Thanks, Yeah. Thanks, Shlomo I knew somebody would would catch up to that and errors that question because you know.

Ajay: Yeah, thanks, Ananda. I knew somebody would catch up to that and ask that question because, you know, we're quite proud of where we are in terms of, you know, at FAT, as I mentioned earlier. Some of the tricky processes that we have, obviously, as some of you are closer to it, you know, the laser dicing and stacking process, which is in the front end, and that typically is where we, you know, in Gen 1, lost a good amount of yield.

Ajay: Quite proud of.

Ajay: We are in terms of U S.

Ajay: If it be like a wrench.

Ajay: I mentioned earlier some of the three key processes that we have obviously as some of you are closer to a deal liberalizing and stacking process, which is at the front end and that typically is where you know in gen. One at least we lost.

Ajay: And that's where we feel very confident now that we have, even in the first shot FAT, when we did the FAT, not only the 25 parameters of CTQs were looking very good, more than 1.1, 1.3 CPKs. So for people who are close to that, that's upwards of 95% yield in those processes alone, right?

Ajay: A good amount of yield and that's where we feel very confident now that you.

Ajay: Even in the fourth shot if it would be when we did the if it is not only the critical parameters of Cpus were were looking very good.

Ajay: More than 1.11, <unk>. So for people, who are close to that that's upwards of 95% yield.

Ajay: And of course boxes alone right. So.

Speaker Change: Again like I said, you know operations Guy gets pretty excited actually when you see everything there is about 95%. So that's where we are right now.

Ajay: You will only get better and with the very confident about what we talked about about yields by the end of the year.

Speaker Change: Excellent great context really appreciate it thanks guys.

Anand Braha: Excellent. Great context. I really appreciate it. Thanks, guys.

Gus Richard: Our next question comes from Gus Richard of Northland Capital Markets.

Anand Braha: Our next question comes from Gus Richard of Northland Capital markets.

Unknown Executive: Thanks for taking the question. I'm just curious about when you'll start sending samples to customers and from Fab 2 and how quickly that can ramp when you start to send samples out of Fab 2 in Q3, or will that have to wait until Q4?

Gus Richard: Thanks for taking the question.

Gus Richard: Just curious on when you start sending samples to customers in.

Gus Richard: From fab, two and how quickly that can ramp we will start to send samples out of fab two in Q3, where we'll have to wait until Q4.

Unknown Executive: No, it'll definitely be Q3 from FAB 2. We are gearing up to finishing up the FATs, like I said. We are going to finish up SAT here, you know, in Q3, but the samples are definitely going to the same customers that we, Raj and Farhan, have talked about in Q3.

Speaker Change: No it'll definitely be Q3.

Unknown Executive: From fab two.

Unknown Executive: We're gearing up.

Unknown Executive: Finishing up the if it is like I said, then we are going to finish up S. A bit here in.

Unknown Executive: In Q3.

Unknown Executive: But the samples definitely in going to the same customers that we rush and foreign I've talked about in Q3.

Unknown Executive: Yeah, so I just got a little bit more color. We are making samples now of this eX1M here. So those will go out to the customers first, and they'll start doing some testing and so on. Meanwhile, we'll also start building on our side. And as they start testing, they give us some more feedback and say, hey, we'd like this tested, that tested, and we're going to do all those tests also on the samples that come out from Penang. And then we will send them those in Q3.

Speaker Change: Yeah, So just a little bit more color.

Unknown Executive: Our making samples now of this E X one of them here.

Unknown Executive: So those will go out to the customers first and so they will they'll start doing some testing and so on Meanwhile, we'll also start building on our site and as they start testing they give us some more feedback and hey, we'd like this tested that test it and we're going to do all of those test also of the samples that come out from <unk> from Penang and and then we will we'll send them those.

Unknown Executive: In beauty.

Unknown Executive: Just a quick clarification Farhan reminded me, so the first battery is out of FAB 2 still happening here in Q2. Right, which is what we have been talking about, and we're confirming that that's going to happen, but fully tested batteries, as Raj pointed out, to go to the customers after all the safety testing, after everything that is relevant to the customer going out, will be in Q3, early Q3.

Unknown Executive: Just a quick clarification for I'm reminded me so first batteries out of fab two still happening here in Q2 right.

Unknown Executive: Right, which is what we have been talking about and we're confirming that that's going to happen, but fully tested batteries as a as Raj pointed out to go to their customers. After all the safety testing after everything that is relevant to the customer wearing out will be in Q3 early June.

Unknown Executive: And then are you still sampling customers out of Fremont? And, you know, sort of what's the volume that you're able to ship to customers at this point? You know, was that a significant portion of Q1 revenue? No, no, these are not.

Unknown Executive: And then are you still youre still sampling.

Unknown Executive: Customers out of Fremont and.

Unknown Executive: Sort of what's what's the volume because you were able to ship to customers. At this point was that a significant portion of Q1 revenue.

Unknown Executive: No, no, these are not big volumes. These are hundreds of samples.

Unknown Executive: No. No. These are these are not not not big volumes is that hundreds of samples.

Unknown Executive: As you guys know, we don't have a high-volume manufacturing line here. We mainly have an R&D line with which we can make some samples. But we don't have to ship a lot, because it's mainly for testing and making sure they're OK. But ultimately, customers want samples from our agility line, which, as I mentioned, we're super excited about. The FAT is all done, and the machines are almost there in Penang. So in a short order, we'll be getting samples from there.

Speaker Change: As you guys know, we don't have a manufacturing high volume manufacturing line here, we mainly have an R&D line.

Unknown Executive: With which we can make make some samples, but you know we don't have to ship a lot because it's mainly for testing and make sure they're okay, but ultimately customer one samples from from our agility line, which as I mentioned, we are Super excited therefore, it is all done and the machines at all almost dead in a in a in <unk>.

Unknown Executive: Penang so in a short order, we'll be getting samples from there.

Speaker Change: Thanks, so much.

George Jagox: Our next question comes from George Jagox from Conocord.

Unknown Executive: Our next question comes from Georgia.

George Jagox: Canaccord.

Unknown Executive: Hey, everyone. Thank you for taking my question. Appreciate it. Wondering if you can update us on what's happening with materials-related conversations, companies like Group 14, specifically, if you can help us better quantify the performance improvement you bring to cells using relative to those using conventional cell construction with their material. There seems to be an active debate in the marketplace. Thank you. Yeah, I mean, you know,

George Jagox: Hey, everyone. Thank you for taking my question I appreciate it.

Unknown Executive: I'm wondering if you can update us on what's happening with your materials related conversations with companies like group 14, specifically, if you can help us more better quantify the performance improvement you bring to cells using <unk>.

Unknown Executive: Relative to those using conventional cell construction with their material there seems to be still an active debate in the marketplace. Thank you.

Unknown Executive: Yeah, I mean, look, we are a material agnostic company, and we're using different kinds of materials. You know, luckily, we now also have a graphite battery that RoutJet makes. So we can, or we're also able to figure out how to improve those batteries with some amount of this new, newer, newer silicon that we can put on top of that. Everything we've seen, you know, between five and 8%; if you put any more than that, the battery swells up.

Unknown Executive: Yeah, I mean, I you know.

Unknown Executive: Look we are making it a diagnostic company and we're using different kind of materials.

Unknown Executive: We now also have a have a.

Unknown Executive: Have I badly that Oh generics. So we can auto we're also able to.

Unknown Executive: They figured out how to improve those batteries with some amount of this newer newer silicon that we can put on top of that everything we've seen.

Unknown Executive: You know between five and 8% if you put any more than that the battery swells up so the only architecture that I know of that can actually allows people to use more of silicon in a battery is X architecture.

Unknown Executive: So the only architecture that I know of that can actually allow people to use more silicon in a battery is the InnoVix architecture. And, you know, at any reasonable amount that actually meaningfully increases the energy density. And that's what we're focused on. And we use, you know, 100% active silicon. So as different kinds of silicon materials come out, we're happy to use them, test them, and they all have, you know, properties like longer cycle life, different kinds of fade, different kinds of fast charge, and so on. But to get the high energy density, we absolutely feel we need the InnoVix architecture to constrain the swelling of silicon.

Unknown Executive: And and we are at any any reasonable amount that actually meaningfully increases the energy density and that's what we're focused on and we use 100% active silicon so as different kinds of silicon materials come out.

Unknown Executive:

Unknown Executive: We're happy to use them test them and they all have.

Unknown Executive: Properties like longer cycle life or different kinds of fed different kind of fast charging and so on but to get the high energy density we absolutely feel we need the intermix architecture to constrain the swelling of silicon.

Ben Johnson: Our next question comes from Ben Johnson of Piper Sandler. I don't have a question at this moment. Our next question comes from Chris Souther of B Riley.

Unknown Executive: Our next question comes from Ben Johnson of Piper Sandler.

Chris Souther: I don't have a question at this moment.

Ben Johnson: Our next question comes from Chris Souther of B Riley.

Chris Souther: Hey guys, it seems like we're getting more confident about the economics, and we're learning about the manufacturing process and pricing strategy here. We've talked about customers potentially financing future lines. Does the less than 1 year payback change that approach? Or does it make more sense for you to finance yourselves or just make it more attractive to customers to potentially finance? Can you kind of walk through how that, you know, decision-making process is evolving here? Yeah, look, that's, that's.

Speaker Change: Hey, guys. It seems like we're getting more confident on the economics, we're all learning about the manufacturing process and pricing strategy here.

Chris Souther: Yeah, we've talked about customers potentially financing future lines is the less than one year payback change that approach, where it makes more sense for you to finance yourselves or.

Chris Souther: Just make it more attractive to customers to potentially finance give me kind of walk through.

Chris Souther:

Chris Souther: Decision, making process is evolving here.

Unknown Executive: Yeah, look, that's definitely a big consideration in whether to take customer financing or not. We've also talked to Asian banks in terms of project financing options. So I think if we have signed agreements with Demand Confirmed and Economics that are attractive, I don't think it will be a very difficult choice for us to get financing for project financing. And so, you know, whether we take customer financing or we go project financing will really depend on the economics. And I think the important thing really is to understand fundamentally what's driving the model, right? And when you look at it, we give really unmatched energy density.

Chris Souther: No.

Chris Souther: That's definitely a big.

Unknown Executive: Consideration on whether to take customer financing or not.

Unknown Executive: We will also talk to an Asian banks in terms of project financing options. So I think if we have.

Unknown Executive: Signed agreements with demand confirmed and economics that are attractive I don't think it will be a V.

Unknown Executive: In a difficult choice for us to get financing for project financing.

Unknown Executive: And so you know, whether we take customer financing or we go project financing it would really depend on the economics and I think the important thing really is.

Unknown Executive: To understand fundamentally what's driving the model right.

Unknown Executive: And when you look at it we gave really unmatched energy density.

Unknown Executive: If you look at the eX2M, it's far superior to anything that's on the roadmap that's out there from any of our competitors. And, you know, customers see that. And we already know what the pricing is for the sort of high-end batteries. And with that pricing and some premium, which we think will be justified for our differentiated performance, and given that we are the only game in town, I think we can get to the financial performance that I described, assuming that, you know, all the cost reductions that RJ is targeting, we are also able to execute on them. So I think, you know, we have all the pieces to get to that model, and we just have to execute on getting there.

Unknown Executive: If you look at the extra Ram its far superior to anything that's on the roadmap that's out there from any of our competitors and you know customer feedback.

Unknown Executive: And we already know what the pricing is for the <unk>.

Unknown Executive: Sort of the high end batteries.

Unknown Executive: With that pricing and with some premium, which we think will be justified for a differentiated performance and given that we are only game in town.

Unknown Executive: I think we can get to the financial performance that I described along.

Unknown Executive: Assuming that you know all the cost reductions that.

Unknown Executive: James targeting we are also able to execute on them. So I think like you know it's the we have all the pieces to get to that model and we just have to execute towards getting that.

Unknown Executive: Our next question comes from Sean Milligan of JANI.

Unknown Executive: Our next question comes from Sean Milligan of Janney.

Sean Milligan: Hey, Raj, thanks for taking my question. I hopped on a little late.

Sean Milligan: It's hey, Raj Thanks for taking my question.

Sean Milligan: I hopped on a little late so sorry, if you already addressed this but I think on.

Sean Milligan: On the last call you talked about kind of the nine to 12 month.

Sean Milligan: Qualification timeline for those.

Sean Milligan: The smartphone customers and.

Sean Milligan: I saw on the press release and is starting to deliver samples six of eight into queue. Just curious if you could comment on that nine to 12 months the all time.

Unknown Executive: So sorry if you've already addressed this, but I think on the last call, you talked about kind of a nine to 12 month qualification timeline for smartphone customers. And I saw in the press release that you were starting to deliver samples. [inaudible] Is that from delivery of the first sample to the final sample? Like, how do we think about that qualification time and sort of the I guess the iterations of samples that may go to them if that's happening concurrently in that whole timeline or not?

Sean Milligan: Is that from delivery at first sample like final sample like how do we think about the qualification time in sort of the.

Unknown Executive: I guess the iterations of samples that May go to that that's happening concurrently in that whole timeline or not.

Unknown Executive: Yeah, I mean, look, we are able to deliver some samples now from Fremont. And those, you know, we will be sending them soon. As I said, we're producing them. You saw in our shareholder letter some of the pictures of our EX1M batteries; the customers will do some testing with them. So they'll get a feel for what it does, and so on.

Speaker Change: Yeah, I mean look we were able to Delaware some samples now from from Fremont and.

Unknown Executive: It does.

Unknown Executive: We will be sending them soon as I said, we are producing them and you saw in our shareholder letter or some other pictures of what he Exxon and batteries.

Unknown Executive: The customers will do some testing with them so they'll get a feel for what it does and so on but ultimately they want samples from our high volume manufacturing I mean, I'm from our agility line from Malaysia to really start the call process. So that we mentioned.

Unknown Executive: Is when we start shipping in in Tokyo reproduce the first one centric you've reduced the next one so you can think of nine to 12 months from the summer when we start shipping samples right. That's why I was saying latter half of next year is when we expect to see those see those protections happen.

Unknown Executive: But ultimately, they want samples from our high volume manufacturing, I mean, from our agility line in Malaysia, to really start the quality process. So that we mentioned, when we start shipping in, you know, two Q we produce the first one, send three Q to produce the next one. So, you know, you can think of nine to 12 months from, you know, the summer when we start shipping samples, right? That's why I was saying, the later half of next year is when we expect to see those productions happen.

Unknown Executive: Now, will a few customers do them sooner? I hope so, but that's not what my experience has been with batteries. It typically takes that time because they're very careful. A battery is something that people want to make sure it's 100% safe and so on.

Unknown Executive: Well, a few customers do them sooner I hope so, but that's not what what my experience has been as batteries. It typically it takes that time, because they are very careful of battery and something that people want to be make sure it's 100% safe and so on so, but that's where the first launch in a like I mentioned once we get there it's qualified by their by their technology teams is qualified by the sourcing team.

Unknown Executive: So, but that's for the first launch. You know, like I mentioned, once we get there, it's qualified by their technology teams. It's qualified by their sourcing teams. And we're in the system. The next products can come much faster. So the first one is the one that takes 9 to 12 months.

Unknown Executive: And we are in the system. The next products next products can come much faster. So the first one is the one that takes nine to 12 months.

Unknown Executive: Okay, so would the idea be that Sorry, so just trying to sell to the smartphone customers. Maybe with their main sales season, like, would you hope that you would have, you know, volumes of commercial phones, like the second half of next year? Is it more like the first half of 26? And you would be building inventory, kind of the second half of next year to serve? You know that 2026 launch. I'll target

Speaker Change: Okay, so with the idea be that.

Unknown Executive: Sorry, so just trying to understand with the smartphone customers.

Unknown Executive: Maybe like with their main sales season like would you hope that you would have a you know volumes in commercial sounds like the second half of next year or is it more like the first half of 'twenty six and you will be building inventory kind of a second half of next year to serve.

Unknown Executive: You know that 'twenty 'twenty six launch.

Unknown Executive: Our target is to have them informed in the second half of next year, you know; that's what we're working towards. Yeah.

Unknown Executive: Our target is to have them in phones in second half of next year.

Speaker Change: That's good.

Unknown Executive: Towards yeah.

Tim Moore: Our next question comes from Tim Moore of EF Hutton.

Unknown Executive: Our next question comes from Tim more of ear pain.

Tim Moore: Yeah.

Tim Moore: Thanks.

Unknown Executive: Thanks. My first question is, now that you have inked the development agreement with a top five volume smartphone OEM, I'm wondering if you maybe could share a little bit more color and detail on how you evaluate and what hurdles you might be applying for allocating future capacity to customers in 2026 and beyond. In other words, really, how do you go about prioritizing your capacity that's going to be coming on based on proposals that come across your desk from other customers?

Tim Moore: Thanks, Tom and my first question is now that you're into development agreement with a top five volume smartphone OEM I'm wondering if maybe you can share a little bit more color and detail on how you evaluate and what hurdles you might be applying for allocating future capacity to customers in 2026.

Unknown Executive: In other words really how do you go about prioritizing your capacity coming on.

Speaker Change: One <unk>.

Unknown Executive: Proposal that come across your desk from other customers.

Unknown Executive: I mean, this is in the early stages, right? I mean, I think this is not, you know, this happens all the time.

Unknown Executive: At this early stages right I mean, I think that this is not.

Unknown Executive: So, you know, it'll really depend upon which phone models and which customers and how much we get prioritized. And are we on multiple models at one customer or one model at each customer, and so on. It really will depend upon how the rest of this year goes and how the early part of next year goes. It's a little too early to talk about prioritizing customers.

Unknown Executive: This happens all the time, so you know.

Unknown Executive: It really depends upon which one models in which customers and how much we get prioritized them and we have multiple models had one customer in one model at each customer and so on it really will depend upon how the rest of this year goes on how early part of next year, but it's a little too early to talk about prioritizing customers.

Farhan: Okay, that's helpful. And all my other strategic and operational questions have already been addressed. I was just wondering, just one financial question for the income statement for the rest of the year. How should we think about, you know, accelerate depreciation and R&D showing up in the next few quarters? Is that probably going to occur until you maybe lap the acquisition?

Speaker Change: Yeah, that's helpful and Oh, my other strategic and operational questions were already addressed but I was just wondering just one financial question for the income statement for the rest of the year.

Farhan: How should we think about you know accelerated depreciation and R&D.

Farhan: Up in the next few quarters.

Farhan: Is that probably going to occur until you maybe lap the acquisition late October.

Unknown Executive: Now, so the accelerated depreciation, just as a reminder, was associated with the restructuring that we did in Fremont, where we announced that we were going to stop the manufacturing activities in Fremont for the small cell and, you know, plans to move high volume production to Malaysia. So at that time, we had really taken accelerated depreciation in Fremont.

Farhan: Now so the accelerated depreciation just as a reminder was associated with the restructuring that we did in Fremont, where we announced that we're going to stop the manufacturing activities in Fremont for the small cell.

Unknown Executive: You know plans.

Unknown Executive: Plans to move high volume production into Malaysia. So at that time, we had to really dig.

Unknown Executive: Taken accelerated depreciation in Fremont.

Unknown Executive: And so we had said that it would be over a two-quarter period, so Q4 and Q1. And we disclosed that in Q1, $18.5 million was included in the R&D expenses, and that will not repeat in Q2. So basically, you take your Q1 R&D run rate, subtract $18.5 million, that gives you a baseline, and from that level, that's kind of where you should start. And we should probably be around a similar level, and then for operating expenses, we should decline after that because of the further actions that we announced today.

Unknown Executive: And so we had said that it would be a one or two quarter period. So you know Q4 and Q1.

Unknown Executive: So and we disclose that.

Unknown Executive: In Q1, and a half million dollars were included in the R&D expenses.

Unknown Executive: And that will not repeat in in the Q2, So basically you take lucky or unlucky, our Q1 R&D run rate subtract 18, and a half million that gives you a baseline and from that level, that's kind of where you should start.

Unknown Executive: We will we should probably be around same similar level and then decline.

Unknown Executive: Our operating expenses, we should decline after that and because of the for the actions that we announced today.

Unknown Executive: Does that answer your question? Great. Yeah, it does. It does. I thought it would last two quarters, but I just want to double check and try to factor in the extra cost savings.

Unknown Executive: Does that answer your question right that's helpful.

Unknown Executive: So that clarifies everything. Thank you. That's it for my question.

Speaker Change: Yeah. It does it does I thought it would last few quarters, but I just want to double check you can try to factor in the extra cost.

Speaker Change: That clarifies everything thank you that's it for my questions.

Raj: Thank you. There are no further questions at this time. With that, I'd like to turn it over to Dr. Raj Tillery for closing remarks.

Speaker Change: Thank you Sir.

Speaker Change: There are no further questions at this time with that I'd like to turn it over to Dr. Rice Hillary for closing remarks.

Yeah, thank you everyone for your questions and thank you for tuning in. Before we wrap, I want to highlight that we'll have a live stream of A Mayor Ask Me Anything on our YouTube channel on Monday, May 6. If your question didn't get answered today, please feel free to submit your questions for next week. And we look forward to what should be a great conversation. And thank you once again.

Speaker Change: Yeah. Thank you everyone for your questions and thank you for joining us before we wrap I I want to highlight that we will have a livestream are fair and they ask me anything on our Youtube channel and Monday may 6th if your question Didnt get answered today. Please feel free to submit your questions for next week and we look forward to what should be a great dialogue and thank you once again.

Raj: Yeah.