Q2 2024 Enovix Corp Earnings Call

Unknown Executive: Thank you to Farhan for the financials and the outlook. I'll have a few closing comments and then we'll take your questions.

Farhan Ahmad: to Farhan for the financials and the outlook.

And the outlook.

Raj Talluri: I'll have a few closing comments, and then we'll take your questions.

Speaker Change: Over to Farhan for the financials and the outlook. I'll have a few closing comments and then we'll take your questions.

Raj Talluri: Now we had a very productive second quarter to recap some of our recent achievements. First, we delivered a Q2 revenue of 3.8 million, which was about the midpoint of our forecast. And we expect significant revenue growth in the second half of the year from the first half.

Raj Talluri: We had a very productive second quarter. To recap, some of our recent achievements. First, we delivered Q2 revenue of 3.8 million, which was about the midpoint of our forecast. And we expect significant revenue growth in the second half of the year from the first half. Second, we had some very important commercial announcements, starting with an agreement we announced in June with the leading California-based technology company in the XR market. Then, today, we're announcing a collaboration agreement with a Fortune 200 company, and also our second deal with an automaker.

Speaker Change: Now we had a very productive second quarter. To recap some of our recent achievements, first we delivered a Q2 revenue of $3.8 million, which was above the midpoint of our forecast, and we expect significant revenue growth in the second half of the year from the first half.

Raj Talluri: Second, we had some very important commercial successes, starting with an agreement we announced in June with a leading California-based technology company in the XR market. Then today we're announcing a collaboration agreement with a Fortune 200 company and also our second deal with an auto EM. And lastly, we moved into operational mode in Malaysia as we began building batteries on the agility line while ramping down our how it cost manufacturing operation in the US. After this, we did it after completing the first batch of EX-1M samples, which we have now sent to some of our customers.

Speaker Change: Second, we had some very important commercial successes.

Speaker Change: Starting with an agreement we announced in June with the leading California-based technology company in the XR market.

Speaker Change: Then, today we are announcing a collaboration agreement with a Fortune 200 company and also our second deal with an auto OEM.

Raj Talluri: And lastly, we moved into operational mode in Malaysia as we began building batteries on the agility line while ramping down our high-cost manufacturing operation in the U. S. After this, we did it after completing the first batch of EX1M samples, which we have now sent to some of our customers. Now Malaysia has come along very nicely, to the extent we've taken a little bit longer than we planned.

Speaker Change: And lastly, we moved into operational mode in Malaysia as we began building batteries on the agility line while ramping down our high-cost manufacturing operation in the U.S.

Speaker Change: After this, we did it after completing the first batch of EX1M samples, which we have now sent to some of our customers.

Raj Talluri: Now, Malaysia has come along very nicely. To the extent we've taken a little bit longer than we planned, this has been due to our previously stated desire not to cut any corners and make sure all the equipment we're installing meets our rigorous specifications. We now have an agility line that has cleared the SAT or the Site Access and Test and is producing first runs of our EX-1M batteries. Our high volume line is right behind it, having cleared the FAT of all the key modules and is the process of arriving and being installed at our site.

Speaker Change: Now, Malaysia has come along very nicely.

Raj Talluri: This has been due to our previously stated desire not to cut any corners and make sure all the equipment we're installing meets our regular specifications. We now have an agility line that has cleared the SAT, or the Site Acceptance Test, and is producing fast runs of our EX1 embedded. Our high volume line is right behind it, having cleared the FAT of all the key modules, and is in the process of arriving and being installed at our site.

Speaker Change: To the extent we've taken a little bit longer than we planned, this has been due to our previously stated desire not to cut any corners and make sure all the equipment we're installing meets our regular specifications.

Speaker Change: We now have an agility line that has cleared the SAT, or the Site Acceptance Test, and is producing fast runs of our EX1M batteries.

Speaker Change: Our high-volume line is right behind it, having cleared the FAT of all the key modules, and is in the process of arriving and being installed at our site.

Raj Talluri: We are super excited to show off this progress at our Malaysia grand opening next week. And many customers, including some big name customers with lots of revenue, like including smartphone customers and some cloud OEMs, have now begun scheduling visits to our facility and will be participating. We will be welcoming them next week to showcase our factory. We believe everyone who sees it will be amazed by the quality of the factory we've built and the quality of the team we have hired. Now, speaking of customers, our engagement activity continues to strengthen. In the smartphone market, we work closely with the top 5 OEMs we identified in our last call to clear the first two key milestones in the development agreement that we signed.

Raj Talluri: We are super excited to show off this progress at our Malaysian grand opening next week. And many customers, including some big name customers with lots of revenue, like smartphone customers and some cloud OEMs, have now begun scheduling visits to our facility and will be participating. We will be welcoming them next week to showcase our factory.

Speaker Change: We are super excited to show off this progress at our Malaysia Grand Opening next week.

Speaker Change: And many customers, including some big-name customers with lots of revenue, like including smartphone customers and some cloud OEMs.

Speaker Change: We have now begun scheduling visits to our facility and we will be welcoming them next week to showcase our factory. We believe everyone who sees it will be amazed by the quality of the factory we have built and the quality of the team we have hired.

Raj Talluri: We believe everyone who sees it will be amazed by the quality of the factory we've built and the quality of the team we have hired. Now, speaking of customers, our engagement activity continues to strengthen. In the smartphone market, we work closely with the top five OEMs we identified in our last call to clear the first two key milestones in the development agreement that we signed. As noted in our last call, we broadly engage with the leaders in this market and continue to discuss more formal agreements and arrangements like this, similar to the one we announced in May. As we all saw over the course of the last quarter, leading OEMs are now starting to announce AI features, which will become native and standard in the next generation of smartphones.

Speaker Change: Now, speaking of customers, our engagement activity continues to strengthen.

Speaker Change: In the smartphone market, we work closely

Speaker Change: With the top five OEMs we identified in our last call to clear the first two key milestones in the development agreement that we signed. As noted in the last call, we broadly engage with the leaders in this market and continue to discuss more formal agreements and arrangements like this, similar to the one we announced in May.

Raj Talluri: As noted in the last call, we broadly engage with the leaders in this market and continue to discuss more formal agreements and arrangements like this, similar to the one we announced in May. As we all saw over the course of the last quarter, leading OEMs are now starting to announce AI features which will become native and standard in the next generation smartphones. Clearly, we were early in pointing this out trend last year as we engage with the customers and saw where these product road maps were heading. As I sit here and observe what's happening, it's my belief that the 4,000, 5,000 milliampers battery in the smartphones in our pockets today will soon go to more than 6,000 milliampers and beyond due to AI and other enhanced features.

Speaker Change: As we all saw over the course of the last quarter, leading OEMs are now starting to announce AI features which will become native and standard in the next generation of smartphones.

Raj Talluri: Clearly, we were early in pointing this out trend last year, as we engaged with customers and saw where these product roadmaps were heading. As I sit here and observe what's happening, it's my belief that the 4,000, 5,000 milliamp hour battery in the smartphones in our pockets today will soon go to more than 6,000 milliamp hours and beyond due to AI and other enhanced features. Now, this is really good news for the battery industry broadly and especially for us at InnoVix.

Speaker Change: Clearly, we were early in pointing this out trend last year as we engage with the customers and saw where these product roadmaps were heading.

Speaker Change: As I sit here and observe what's happening, it's my belief that the 4,000-5,000 mAh battery in the smartphones in our pockets today will soon go to more than 6,000 mAh and beyond due to AI and other enhanced features.

Raj Talluri: Now, this is really good news for the battery industry broadly and especially for us at Inavix. That's because we offer the customers in our target markets. What we believe is the only path forward to fully replace graphite with silicon to boost energy density in order to keep up with this rapidly increasing power needs without unduly increasing the size of the battery. Now, notably, we've already made early prototypes of our EX2M batteries here in Fremont, and we were able to evaluate the high energy density through the next generation chemistries that we've been working on. We are super excited by this result.

Speaker Change: Now, this is really good news for the battery industry broadly, and especially for us at InnoVix. That's because we offer the customers in our target markets

Raj Talluri: That's because we offer customers in our target markets what we believe is the only path forward to fully replace graphite with silicon to boost energy density in order to keep up with this rapidly increasing power needs without unduly increasing the size of the battery.

Speaker Change: What we believe is the only path forward to fully replace graphite with silicon to boost energy density in order to keep up with this rapidly increasing power needs without unduly increasing the size of the battery.

Raj Talluri: Now, notably, we've already made early prototypes of our EX2M batteries here in Fremont, and we were able to validate the high energy density through the next generation chemistries that we've been working on. We are super excited by this result. We also see incremental growth opportunities for the conventional battery business we acquired last year in Korea, the company called RoutJet. Specifically, these batteries have a very high rate capability.

Speaker Change: Now, notably, we've already made early prototypes of our EX2M batteries here in Fremont, and we were able to validate the high energy density through the next generation chemistries that we've been working on. We are super excited by this result.

Raj Talluri: We also see incremental growth opportunities for the conventional battery business we acquired last year in Korea, the company called Route Gen. Specifically, these batteries have very high rate capabilities. Now this high rate capabilities have proven very useful for the Korean military and also a number of industrial IoT applications. We see this also being applicable to other allied military forces, including the US. And this high rate capabilities also design other product categories such as power tools.

Speaker Change: We also see incremental growth opportunities for the conventional battery business we acquired last year in Korea, the company called RouteJet.

Speaker Change: Specifically, these batteries have very high rate capabilities.

Raj Talluri: Now, these high-rate capabilities have proven very useful for the Korean military and also a number of industrial IoT applications. We see this also being applicable to other allied military forces, including the U.S., and this high-rate capability is also desired in other product categories, such as power tools. It's important also to realize that we are investing heavily to support lasting technical leadership to build out a roadmap. For example, our core R&D account at the end of the second quarter was nearly double that of a year ago. Double the level a year ago, and that's excluding the R&D team we added through the OutJet acquisition. Now, if we include the Korea R&D team also.

Speaker Change: Now, these high rate capabilities have proven very useful for the Korean military and also a number of industrial IoT applications.

Speaker Change: We see this also being applicable to other allied military forces, including the U.S.

Speaker Change: and this high rate capability is also desired in other product categories such as power tools.

Raj Talluri: It's important also to realize that we are investing heavily to support lasting technical leadership to build out our roadmap. For example, our core R&D account at the end of second quarter was nearly double that of a level ago, a double the level a year ago, and that's excluding the R&D team we added through the R&D acquisition. Now, if we include the Korean R&D team also, our R&D headcount is up nearly 170% year on year. And we intend to keep growing; for example, we now have a core R&D team in Malaysia that we now intend to double by the end of the year.

Speaker Change: It's important also to realize that we are investing heavily to support lasting technical leadership to build out a roadmap. For example, our core R&D account at the end of the second quarter,

Speaker Change: was nearly double the level a year ago. And that's excluding the R&D team we added through the OutJet acquisition.

Raj Talluri: Our R&D headcount is up nearly 170% year-on-year, and we intend to keep growing. For example, we now have a core R&D team in Malaysia that we now intend to double by the end of the year. Now, we've done all this while in parallel, taking actions to significantly reduce our fixed costs by exiting the expensive California manufacturing. We also topped up our strong balance sheet via the ATM. This gives us a strong runway and plenty of time to prove out our manufacturing, along with our customer acceptance of our leading battery. With that, I'm going to turn it over to Farhan for the financials. Thanks a lot.

Speaker Change: Now, if we include the Korea R&D team also.

Speaker Change: Our R&D headcount is up nearly 170% year-on-year.

Speaker Change: And we intend to keep growing, for example, we now have a core R&D team in Malaysia that we now intend to double by the end of the year.

Raj Talluri: Now we've done all this while in parallel taking actions to significantly reduce our risk cost by exiting the expensive California manufacturing. We also topped up our strong balance sheet by the ATM. This gives us a strong runway and plenty of time to prove out our manufacturing, along with our customer acceptance of our leading battery.

Speaker Change: Now we've done all this while in parallel taking actions to significantly reduce our fixed costs by exiting the expensive California manufacturing.

Speaker Change: We also topped up our strong balance sheet via the ATM. This gives us a strong runway and plenty of time to prove out our manufacturing along with our customer acceptance of our leading battery. With that, I'm gonna turn it over to Farhan for the financials, Farhan.

Farhan Ahmad: With that, I'm going to turn it out to Farhan for the financials.

Farhan Ahmad: Farhan. Thanks so much. All the relevant financials are in the Kotl leaderboard and the shareholder ladder.

Farhan Ahmad: Thanks Raj. All the relevant financials are in the quarterly report and the shareholder letters, so I'll keep my comments relatively short. I'll be delivered.

Farhan: Thanks Raj. All the relevant financials are in the quarterly report and the shareholder letters, so I'll keep my comments relatively short.

Farhan Ahmad: So I'll keep my comments relatively short. We delivered second quarter revenue of 3.8 million, which was in the upper half of the guidance range. Non-GAAP EBITDA was a net loss of 23.1 million, above our guidance of a loss of 26 to 32 million. And non-gap EPS came in at a loss of 14 cents. Also, above our guidance of loss of 22 to 28 cents. We ended the quarter with roughly 250 million dollars of cash and equivalence. And our balance sheet is very strong, and as Raj mentioned, provides us with strong liquidity.

Farhan Ahmad: Second quarter revenue of 3.8 million, which was in the upper half of the guidance stream. Non-GAAP EBITDA was a net loss of $23.1 million, above our guidance of a loss of $26 to $32 million. Non-GAAP EPS came in at a loss of $0.14, also above our guidance of a loss of $0.22 to $0.28.

Farhan: We delivered second quarter revenue of 3.8 million, which was in the upper half of the guidance range.

Farhan: non-GAAP EBITDA was a net loss of $23.1 million, above our guidance of loss of $26 to $32 million.

Farhan: A non-GAP EPS came in at a loss of $0.14, also above our guidance of loss of $0.22 to $0.28.

Farhan Ahmad: We ended the quarter with roughly $250 million of cash and Equivalence, and our balance sheet is very strong. And as Raj mentioned, it provides us with strong liquidity. Now for the guidance. Turning to the third quarter of 2024, we forecast revenue in the range of three and a half to four and a half million dollars and an adjusted EBITDA loss in the range of $23 to $29 million and a non-gap EPS loss in the range of 17 to 23 cents per share.

Farhan: We ended the quarter with roughly $250 million of cash.

Speaker Change: and Equivalence. And our balance sheet is very strong, and as Raj mentioned, provides us with strong liquidity.

Farhan Ahmad: Now for the guidance, turning to the third quarter of 2024, we forecast revenue in the range of three and a half to four and a half million dollars and adjusted EBITDA loss in and a non-GAAP EPS loss in the range of 17 to 23 cents per share. As I mentioned, we expect substantial revenue growth from the first half of 2024 to the second half of 2024.

Speaker Change: Now for the guidance.

Raj: Turning to the third quarter of 2024, we forecast revenue in the range of three and a half to four and a half million dollars.

Raj: and adjusted EBITDA loss in the range of $23 to $29 million.

Speaker Change: and a non-gap EPS loss in the range of 17 to 23 cents per share.

Farhan Ahmad: As Raj mentioned, we expect substantial revenue growth for the from the first half of 2024 to the second half of 2025. With that, I'll turn it back to Raj to provide the closing comments. Yeah, thank you, Farhan.

Speaker Change: As Raj mentioned, we expect substantial revenue growth from the first half of 2024 to the second half of 2024.

Raj Talluri: With that, I'll turn it back to Raj to provide the closing comments. Yeah, thank you, Farhan. As you can see, it's been a great quarter. We made substantial progress in many things, particularly fat too, went operational. We took very decisive actions to extend our runway. Now, we are deeply engaged with leaders in the smartphone market, and as the industry hits the inflection point towards larger power requirements during the AI features, this will really help us, you know, get our batteries to production in the smartphone space.

Raj Talluri: Yeah, thank you, Farhan. As you can see, it's been a great quarter. We made substantial progress on many things, particularly Fab 2, which went operational. We took very decisive actions to extend our runway.

Speaker Change: With that, I'll turn it back to Raj to provide the closing comments.

Raj: Yeah, thank you, Farhan. As you can see, it's been a great quarter. We made substantial progress in many things, particularly Fab 2 went operational. We took very decisive actions to extend our runway.

Raj Talluri: Now we are deeply engaged with leaders in the smartphone market, and as the industry hits the inflection point towards larger power requirements due to AI features, this will really help us, you know, get our batteries into production in the smartphone space. In IoT and auto, we signed two important agreements with market leaders. We also were able to prove that we can make the EX2M batteries with high energy density here in Fremont. These are early samples. We're excited by the results with the next generation chemistries. With that, we can now go to questions. Operator?

Speaker Change: Now we are deeply engaged with leaders in the smartphone market, and as the industry hits the inflection point towards larger power requirements due to the AI features,

Raj Talluri: In IoT and Auto, we stopped two important agreements with market leaders. We also were able to prove out that we can make the EX2M batteries with high energy density here in Fremont. These are early samples and excited by that results with the next generation chemistries.

Speaker Change: This will really help us, you know, get our batteries into production in the smartphone space. In IoT and auto, we stuck two important agreements with market leaders.

Speaker Change: We also were able to prove out that we can make the EX2M batteries with high energy density here in Fremont. These are early samples. We're excited by the results with the next generation chemistries. With that, we can now go to questions. Operator?

Operator: With that, we can now go to questions. Operator. We will now begin the Q&A session.

Unknown Executive: We will now begin the Q&A session. Please note that this call is being recorded. Before we go to live questions, we're going to read the two most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is, what are some of the measures you have taken to prevent Chinese companies from pirating your technology? And if a new U.S. administration significantly increases tariffs against China, how will this play out for Inovit? Yeah

Raj Talluri: Please note that this call is being recorded. Before we go to live questions, we're going to read the two most highly-voted questions submitted by shareholders ahead of this call during the call registration. The first question is, what are some of the measures you have taken to prevent Chinese companies from pirating your technology? And if a new US administration significantly increases tariffs against China, how will this play out for ANOVICS?

Speaker Change: We will now begin the Q&A session. Please note that this call is being recorded. Before we go to live questions, we're going to read the two most highly voted questions submitted by shareholders ahead of this call during the call registration.

Speaker Change: The first question is, what are some of the measures you have taken to prevent Chinese companies from pirating your technology? And if a new U.S. administration significantly increases tariffs against China, how will this play out for Inovix?

Raj Talluri: Yeah, thank you for this question. Firstly, you know, ANOVICS has been working on making high energy density silicon batteries for a long time, almost 16 years now. And we have a very, very strong patent portfolio on this technology that we have built both in the way to make batteries and manufacturing, and so on. More importantly, we have a tremendous amount of trade secrets of how to actually make these. And we've been, you know, perfecting these for some time now. So I feel good about our intellectual property and our strong technology leadership.

Raj Talluri: Yeah, thank you for this question. Firstly, you know, Innovex has been working on making high energy density silicon batteries for a long time, almost 16 years now. And we have a very, very strong patent portfolio on this technology that we've built, both in the way to make batteries and manufacturing and so on. But more importantly, we have a tremendous amount of trade secrets about how to actually make these, and we've been, you know, perfecting these for some time now.

Speaker Change: Yeah, thank you for this question. Firstly, you know, Innovix has been working on making

Speaker Change: High energy density silicon batteries for a long time, almost 16 years now, and we have a very, very strong patent portfolio on this technology that we've built both in the way to make batteries and manufacturing and so on.

Speaker Change: More importantly, we have tremendous amount of trade secrets of how to actually make these and we've been, you know, perfecting these for some time now. So I feel good about our intellectual property and our strong technology leadership.

Raj Talluri: But, you know, this is a competitive space, and we have to keep innovating and keeping moving forward to make sure that we have a lead in technology ahead of all our competitors, you know, not just from China.

Raj Talluri: So I feel good about our intellectual property and our strong technology leadership. But, you know, this is a competitive space, and we have to keep innovating and keep moving forward to make sure that we have a lead in technology ahead of all our competitors, not just from China. As for the second comment on the tariffs, it's very difficult, you know, for me to comment on the geopolitical landscape and how that's going to go.

Speaker Change: But, you know, this is a competitive space and we have to keep innovating and keeping moving forward to make sure that we have a lead in technology ahead of all our competitors, you know, not just from China.

Raj Talluri: But I can tell you this, we are seeing a lot of interest from many customers now for a battery that's, you know, made by a North American battery company. And, as you know, we're one of the few ones that can actually make high-energy industry consumer electronics batteries. And, and we are seeing a lot of interest for that nowadays. So we're excited by the position we have there.

Raj Talluri: As for the second comment on the tariffs, it's very difficult to, you know, for me to comment on the geopolitical landscape and how that's going to go. But I can tell you this, we are seeing a lot of interest from many customers now for a battery that's, you know, made by an automatic and battery company. And as you know, we're one of the few ones that can actually make high energy, consumer electronics batteries. And we are seeing a lot of interest for that nowadays. So we are re-excited by the position we have there.

Speaker Change: As for the second comment on the tariffs, it's very difficult for me to comment on the geopolitical landscape and how that's going to go. But I can tell you this, we are seeing a lot of interest from many customers now for a battery that's

Speaker Change: You know made by a North American battery company and as you know we're one of the few ones that can actually make high energy consumer electronics batteries and And we are seeing a lot of interest for that nowadays. So we are very excited by the position we have there

Raj Talluri: The second question is, what is the status of EX2M and EX3M in terms of timelines and their capacity in what hours per liter and milliamp hours. What is the strategy with Alentec partnership?

Raj Talluri: The second question is, what is the status of EX2M and EX3M in terms of timelines and their capacity in watt hours per liter and milliamp hours? What is the strategy with the Elentech partnership? Is this only for the battery pack? Or are we looking beyond that?

Speaker Change: The second question is, what is the status of EX-2M and EX-3M in terms of timelines and their capacity in watt-hours per liter and milliamp-hours? What is the strategy with Elentech Partnership? Is this only for battery pack, or are we looking beyond that?

Raj Talluri: Is this only for battery pack, or are we looking beyond? Yeah, on the first question on the road map, as I mentioned, we are super excited that we were able to create a few samples of the EX2M to prove out that we can make the energy density increases that we talked about. But, you know, as I mentioned before, most customers, based on the market segment we are in, whether it's smartphones or IOTs or extra devices. Optimize the batteries for not just energy density, but energy density, the ability to charge fast, the ability to go for number cycles, the size of the battery, the shape of the battery, and so on.

Raj Talluri: Yeah, on the first question on the roadmap. As I mentioned, we are super excited that we were able to create a few samples of the EX2M to prove that we can make the energy density increases that we talked about. But, you know, as I mentioned before, most customers, based on the market segment we are in, whether it's smartphones or IOTs or XR devices, optimize the batteries for not just energy density but energy density, the ability to charge fast, the ability to go for a number of cycles, the size of the battery, the shape of the battery, and so on.

Speaker Change: Yeah, on the first question on the roadmap, as I mentioned, we are super excited that we were able to create a few samples of the EX2M to prove out that we can make the energy density increases that we talked about. But, you know, as I mentioned before, most customers.

Speaker Change: based on the market segment we are in, whether it's smartphones or IOTs or XR devices.

Speaker Change: Optimize the batteries for not just energy density, but energy density, the ability to charge fast, the ability to go for number cycles, the size of the battery, the shape of the battery, and so on. So it's hard to compare battery just on one metric like ED, but we are, you know, very confident with what we've been able to do so far.

Raj Talluri: So it's hard to compare battery life just on one metric like ED, but we are, you know, very confident with what we've been able to do so far. And then with the next generation of electrochemistry and the next generation of materials coming, we have a strong roadmap for continuing to increase performance beyond the next generation of batteries. As for the comment on Elantech, you know, I mentioned, I think, when we first made the RoutJet acquisition that it was important for us to have the ability not only to own our own coating but also the ability to make packs, because in many markets, customers actually want not just cells but batteries with, you know, the battery management system and so on in a pack. We have some capability to make packs because of the RoutJet acquisition, but

Raj Talluri: So it's hard to compare battery just on one metric like ED, but we are, you know, very confident with what we've been able to do so far. And then, with the next generation electrochemistry and next generation material coming, we have a strong road map of continuing to increase beyond EX2M into next generation batteries.

Raj Talluri: As for the comment on, you know, we, I mentioned, I think when we first made the route jet acquisition, that it was important for us to have the ability not only to own our own coating, but also the ability to make packs because, in many markets, customers actually want not just cells, but batteries with, you know, the power management, battery management system and so on in a pack. We have some capability to make packs because they're out yet acquisition, but the market is big and we need a lot of partners that have the capability to make packs to address various markets.

Speaker Change: You know, we, I mentioned, I think, when we first made the RoadJet acquisition.

Speaker Change: that it was important for us to have.

Speaker Change: The ability not only to own our own coating, but also the ability to make packs.

Raj Talluri: And we need a lot of partners that have the capability to make packs to address various markets. And the Elantech one is one step in the direction of actually building out our channel. So we can address multiple markets, not just in smartphones but, you know, IoT and industrial IoT and XR and other markets.

Raj Talluri: And the only tech one is one step in the direction of actually building out our channel so we can address multiple markets, not just in smartphones, but you know, IOT and industry and XR and other markets.

Operator: We will now go to the queue. If you would like to ask a question, please use the raise hand feature on your screen. If you have dialed in by a phone, use star 9 to raise your hand. 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 a moment to assemble the queue.

Unknown Executive: We will now go to the queue. If you would like to ask a question, please use the raise hand feature on your screen. If you have dialed in using a phone, use star nine to raise your hand.

Unknown Executive: 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 comes from Ananda Baruah of Loop Capital Markets.

Speaker Change: We'll now pause a moment to assemble the queue.

Ananda Baruah: Our first question comes from an under-borrow of Loop Capital Markets. Hey guys, can you hear me? Yeah. Okay, awesome. Yeah, thanks. Thanks so much.

Speaker Change: Our first question comes from Ananda Baruah of Loop Capital Markets.

Ananda Prosad Baruah: Hey guys, can you hear me? Yeah, yeah. Okay, awesome. Yeah, thanks. Thanks so much.

Raj Talluri: Um, yeah, quick question. And then I have just one quick clarification as well. The question, and congratulations on the announced progress here, is, it seems like, based on the announcement, in the last 90 days, that you guys are kind of widening your aperture of engagement, or at least your aperture of progress. There's a couple of IoT announcements. You had in the shareholder letter a power tool, something like a reference to power tools.

Speaker Change: Hey guys, can you hear me?

Ananda Baruah: Yeah, quick question, and then I have just quick clarification as well. The question and congrats on the announced progress here. The question is, it seems like based on the announcement, seemingly in the last kind of days that you guys are kind of widening your aperture of engagement or at least your aperture of progress. There's a rising couple of IoT announcements. You have the shareholder letter, a power tool, jump like a reference to the power tools. You're sort of moving forward the phone; we have engagement. And then now you've announced a second auto, and we use this quarter.

Ananda: Yeah, yeah, go ahead Ananda. Okay, awesome.

Raj Talluri: You're, you know, sort of moving forward with the phone OEM engagement, and then now you've announced the second auto MOU this quarter. So I guess, could you give us some context around what seems to be a broadening engagement across across verticals and, and then also just with regard to Farhan's comments. Is it appropriate to view there being some revenue bridge potential as a result of this between now and whenever you might start shipping, shipping to the smartphone?

Speaker Change: You're, you know, sort of moving forward the OEA, the phone OEA engagement, and then now you've announced the second auto MOU this quarter. So I guess.

Raj Talluri: So I guess could you give us some context around what seems to be broadening engagement across across verticals and then also just with regards to kind of far-hung comment. Is there, is it, is it appropriate to view there being some revenue bridge potential as a result of this between now and wherever you might start shipping, shipping to the, the smartphone? Oh yes, and I have just a quick clarification after that.

Speaker Change: Should you give us some context around what seems to be broadening engagement across across verticals and and then also just with regards to kind of Farhan's comments.

Ananda Prosad Baruah: Oh, yeah. And I have just a quick clarification after that. Thanks.

Raj Talluri: Thanks. Yeah, yeah, sure. Thanks, Ananda.

Raj Talluri: So, you know, I've mentioned before, I think in the last call, one of the toughest batteries to make in the consumer electronic space is actually the battery for the smartphone. Because it is the largest market, the demands are very high. It's got a big display, power-hungry application process, memories, the air requirements are coming in strong. There is things like long cycle life, there's things like fast charge, there's things like energy density and their space constraint. So that is the, you know, toughest space. And as we embark upon making batteries for that, and as you can see from our comments, they're making steady progress there with the OEMs. That battery technology can now be part laid into many other markets, you know, for example, the XR market, for example, the, you know, other markets, other consumer electronic markets as we, as we announced here.

Speaker Change: Yeah, yeah, sure. Thanks, Ananda. So, you know, I've, I've mentioned before, I think, in the last call,

Raj Talluri: Call, one of the toughest batteries to make in the consumer electronic space is actually the battery for the smartphones. Because it is the largest market, the demands are very high. It's got a big display, power hungry application processors, memories, and the AI requirements are coming in strong. There are things like long cycle life, there's things like fast charge, things like energy density, and their space constraints. So that is the, you know, toughest space.

Speaker Change: One of the toughest batteries to make in the consumer electronics space is actually the battery for the smartphones.

Speaker Change: because it is the largest market, the demands are very high, it's got a big display, power-hungry application processors, memories, the AI requirements are coming in strong.

Speaker Change: There is things like long cycle, there's things like fast charge, there's things like energy density and there's space constraint. So that is the, you know, toughest space. And as we embark upon making batteries for that. And as you can see from our comments, we're making steady progress there with the OEMs.

Raj Talluri: And as we embark upon making batteries for that, and as you can see from our comments, they're making steady progress there with OEMs. That battery technology can now be parlayed into many other markets. You know, for example, the XR market, for example, the, the, you know, other markets, other kinds of electronic markets, as we, as we announced here, and the reason is when you can meet those requirements, the rest of the markets that have actually requirements that are a little bit less stringent, is to go after large, high-volume verticals in these markets, but not go after many, many small ones, because that fractures the R&D and does not have much return for a manufacturing company.

Speaker Change: That battery technology can now be parlayed into many other markets.

Speaker Change: [inaudible]

Raj Talluri: At the reason is when you can meet those requirements, the rest of the markets are actually requirements that are a little bit less stringent.

Raj Talluri: Now, I saw this in my past life when I was at Qualcomm. We made apps process that went into smartphones, but then that business quickly, we were able to ramp it into the IoT markets and auto markets and so on, because, you know, the toughest one was the smartphone one. So, in that sense, what you're seeing with the announcements we're making more recently is really the entitlement that the company deserves when we attack, you know, and try to make a battery for the smartphone market. So we are super excited by that, the branching out of it.

Speaker Change: Now, I saw this in my past life when I was at Qualcomm, we made apps processors that went into smartphones, but then that business quickly, we were able to ramp it into the IoT markets and auto markets and so on, because, you know, the toughest one was the smartphone one. So in that sense, what you're seeing with the announcements we're making more recently.

Speaker Change: [inaudible]

Raj Talluri: Again, my goal and the company's goal is to go after large, high-volume verticals in this market, but not go after many, many small ones because that, you know, kind of fractures the R&D and there's not as much return for a manufacturing company.

Raj Talluri: On the auto side, that was actually super exciting development. I know last time we announced one auto AM, the fact that we now have another auto AM also validating the fact that we have this ability to stop the batteries from swelling too much and the ability to charge very quickly is of interest is very exciting. We are now working jointly with them to figure out how to get that technology to the next level. So both of those are, you know, very positive, and I feel entitlements to the technology that we have here.

Raj Talluri: On the auto side, that was actually a super exciting development. I know last time we announced one auto EM. The fact that we now have another auto EM also validating the fact that we have this ability to stop the batteries from swelling too much and the ability to charge very quickly is of interest, and very exciting. We are now working jointly with them to figure out how to get that technology to the next level. So both of those are, you know, very positive, and I feel entitled to the technology that we have here.

Speaker Change: On the auto side, that was actually a super exciting development. I know last time we announced one auto AM. The fact that we now have another auto AM also validating the fact that we have this ability to stop the batteries from swelling too much and the ability to charge very quickly is of interest.

Speaker Change: It's very exciting. We are now working jointly with them to figure out how to get their technology to the next level. So both of those are very positive and I feel entitlements to the technology that we have here.

Ananda Baruah: Thanks for that.

Ananda Prosad Baruah: and thanks for that, and then we're heading off.

Raj Talluri: And then see for another on your second question related to the revenue bridge. It will depend on the pace of ramp and pace of qualifications, but you know, the IoT growth can be another vector for the revenue opportunity for the company. And it can be; it just goes our opportunity and how fast we're going to be able to ramp the revenue.

Speaker Change: And thanks for that.

Farhan Ahmad: Ananda, on your second question related to the revenue bridge. It will depend on the pace of ramp and the pace of qualifications, but, you know, the... IoT growth can be another vector for revenue opportunities for the company. And it just grows our opportunity and how fast we're going to be able to ramp up revenue.

Speaker Change: and then see if we're having those.

Ananda Prosad Baruah: Ananda, on your second question related to the revenue bridge, it will depend on the pace of ramp and pace of qualifications, but you know, the

Speaker Change: The IOT growth can be another vector for the revenue opportunity for the company. And it can be, it just grows our opportunity and how fast we're going to be able to ramp the revenue.

Ananda Baruah: All right, great. Thanks, guys.

Ananda Prosad Baruah: All right, great. Thanks, guys. And then the quick, quick clarification is, Raj, there was mentioned in your remarks about smartphone and cloud customers being in Malaysia next week. Will they actually be at the event next week?

Raj Talluri: And then the cook, the clarification is rise. There is mention in your pair of remarks of smart very in clouds, customers being in Malaysia next week. Well, they actually be at the event next week. Yeah, I mean, we can't exactly comment on when the customers should be there, but there are a number of customers coming to visit us next week, and we can, you know, obviously, say who is what. But many customers want to come at the event, and some customers want to come a little bit ahead, some customers want to come a little bit later, and I do expect that as we build these factories, we will have many customers that will plan their visits, and we are super excited with a list of customers that want to visit us next week.

Speaker Change: All right. Great. Thanks, guys. And then the quick clarification is, Raj, there was mention in your pair of remarks of SmartFerry and Cloud customers being in Malaysia next week. Will they actually be at the event next week?

Speaker Change: Yeah, I mean, we can't exactly comment on when the customers will be there, but there are a number of customers coming to visit us next week.

Raj: and we can't you know obviously say who is what but many customers want to come at the event and some customers want to come a little bit ahead some customers want to come a little bit later and I do expect that as we build these factories we will have many customers that will that will plan their visits and we are super excited with a list of customers that want to visit us next week

Ananda Baruah: Okay, great.

Unknown Executive: [inaudible]

Ananda Baruah: Thanks so much, guys.

Colin Rusch: Our next question comes from Colin Rusch of Oppenheimer. Thanks so much. Thanks so much, guys.

Unknown Executive: Okay, great. Thanks so much, guys.

Speaker Change: Okay, great. Thanks so much, guys.

Speaker Change: Our next question comes from Colin Rusch of Oppenheimer.

Colin William Rusch: Our next question comes from Colin Rusch of Oppenheimer.

Raj Talluri: Can you speak to any potential collaborations with semiconductor companies that you're potentially working on to optimize device-level performance?

Speaker Change: Thanks so much guys. Can you speak to any potential collaborations with semiconductor chip companies that you're potentially working on to optimize device level performance?

Raj Talluri: Yeah, absolutely. You know, as you know, when you put batteries in this in this market, you know, just maybe for the rest of the audience, you know, the battery is the performance of the battery is and the way the battery performs inside, for example, a smartphone is quite a bit in close collaboration with the processor and the power management system because, for example, in a phone when the 5G modem kicks on, it's going to draw power much harder; when it's on standby, it draws power less. So there's many, many aspects of making sure that the battery actually fits well, either in a smartphone or an IoT device based on what processor and what power management system is in there.

Colin William Rusch: Thanks so much. Thanks so much, guys. Now, can you speak to any potential collaborations with semiconductor chip companies that you're potentially working on to optimize device level performance?

Speaker Change: Yeah, absolutely. You know, as you know, when you when you put batteries in this in this market, you know, just maybe for the rest of the audience, you know, the battery is performance of the battery is and the way the battery performs inside, for example, a smartphone.

Raj Talluri: Yeah, absolutely. You know, as you know, when you put batteries in this market, you know, just maybe for the rest of the audience, you know, the battery performance of the battery and the way the battery performs inside, for example, a smartphone is quite a bit in close collaboration with the processor and the power management system because, for example, in a phone, when the 5G modem kicks on, it's going to draw power much harder.

Speaker Change: is quite a bit in close collaboration with the processor and the power management system because

Raj Talluri: When it's on standby, it draws less power. So there are many, many aspects of making sure that the battery actually fits well, either in a smartphone or an IoT device, based on what processor and what power management system is in there. As you know, I've spent a lot of time at Qualcomm and TI and other chip companies, so I'm quite familiar with that. One thing that is happening is that the power management system to actually connect the silicon batteries at 2.7 volts and so on.

Speaker Change: Raj Talluri, Farhan Ahmad

Speaker Change: Raj Talluri, Farhan Ahmad

Raj Talluri: As you know, I've spent a lot of time at Qualcomm and TI and other chip companies, and I'm quite familiar with that. One thing that is happening is that silicon batteries operate at a lower voltage, like, for example, 2.7 volts because there's quite a bit of energy density you can get from the battery at a lower voltage. And a testament to the fact that the world is moving towards silicon batteries is the fact that now you see chip companies, you know, Qualcomm, MediaTek, you know, other companies, Samsung's, and so on, making adjustments to the apps plus power management system to actually connect the silicon batteries at 2.7 volts and so on.

Speaker Change: Batteries,

Speaker Change: Raj Talluri, Farhan Ahmad

Speaker Change: and a testament to the fact that the world is moving towards silicon batteries.

Speaker Change: is the fact that now you see.

Speaker Change: Silicon, and other companies, Samsung, etc., making adjustments to the App Processor plus Power Management system to connect to silicon batteries at 2.7V. We are working with all of them, thanks to our engagement with our customers.

Raj Talluri: We are working with all of them, you know, thanks to our engagement with our customers and thanks to, you know, the deep connections we have in that ecosystem. So we are super excited by that, and I think it's a really good thing because our comprehension of how the battery should be built and how the battery should operate and how the battery should actually be optimized for an end device is getting stronger and stronger, and that really helps us in making the right kind of next-gen batteries.

Raj Talluri: We are working with all of them, you know, thanks to our engagement with our customers and thanks to, you know, the deep connections we have in that ecosystem. So we are super excited by that, and I think it's a really good thing, because our comprehension of how the battery should be built and how the battery should operate and how the battery should actually be optimized for an end device is getting stronger and stronger, and that really helps us in making the right kind of next-gen batteries.

Speaker Change: and thanks to you know the deep connections we have in that ecosystem so we are super excited by that and I think it's a really good thing because

Speaker Change: Our comprehension of how the battery should be built and how the battery should operate and how the battery should actually be optimized for an end device is getting stronger and stronger and that really helps us in making the right kind of next-gen batteries.

Farhan Ahmad: Thanks so much. And then, as a follow-up, can you give us a sense of what you're anticipating as initial yields on fat to and how we should be thinking about ramp and scrap expenses.

Colin William Rusch: Thanks so much. And then, as a follow-up, can you give us a sense of what you're anticipating as initial yields on FAB 2 and how we should be thinking about ramp and scrap expenses to get to the balance of this year in the first part of 2025?

Speaker Change: Thanks so much. And then as a follow up, can you give us a sense of what you're anticipating as initial yields on Feb 2, and how we should be thinking about rampant scrap expenses to get to the balance of this year in the first part of 2025?

Ajay Marathe: We get to the balance of this year in the first part of 2025.

Ajay Marathe: You know, Ajay is actually online from Malaysia; he's there at Fab 2, so I'll let Ajay talk about this. Sure. Yeah,

Ajay Marathe: You know, Ajay is actually online from Malaysia.

Ajay Marathe: He's there at fat to so I'll let Ajay talk about this. Sure, yeah, the yields we, as Raj in his starting comments, we took time a little bit to buy off the equipment in SAT, which is agility equipment, just because we wanted to make sure that there's no corners cut and those kinds of things. And so yields we will we will begin definitely where we left off in fab one, and then they will climb from there to the world class years that we expect on both the line.

Speaker Change: You know, Ajay is actually online from Malaysia. He's there at Fab 2, so I'll let Ajay talk about this.

Ajay Marathe: Sure. Yeah, the yields, we, as Raj said in his starting comments, We took time a little bit to buy off the equipment in SAT, which is agility equipment, just because we wanted to make sure that there were no corners cut and those types of things. So yields, we will definitely begin where we left off in Fab 1, and then they will climb from there to the world-class yields that we expect on both lines.

Ajay: Sure. Yeah, the yields, we, as Raj said in his starting comments,

Ajay: We took time a little bit to buy off the equipment in SAT, which is agility equipment.

Ajay: Just because we wanted to make sure that there's no corners cut and those types of things. So yields, we will we will begin definitely where we left off in Fab 1 and then they will climb from there to the world-class yields that we expect on both the lines.

Raj Talluri: And then in terms of the ramp and scrap expense for the balance of this year, how should we be thinking about that from a modeling perspective? Yeah, let me take a shot at it, and then Ajay, you can add color to it. So if you talk about RAM, you know, as I mentioned, right, we are first focused very heavily on building cells out of an agility line because that's the one that we need to sample to our customers. The HVM line is coming right behind it, and we will work to make sure that HVM line is ready and fully capable by the end of the year because the high volume ramp, as I mentioned before, will happen in next year.

Colin William Rusch: And then, in terms of the ramp and scrap expenses for the balance of this year, how should we be thinking about that from a modeling perspective?

Speaker Change: And then in terms of the ramp and scrap expense for the balance of this year, how should we be thinking about that from a modeling perspective?

Raj Talluri: Yeah, maybe I'll take a shot at it. And then you can add color to it. So if you talk about RAM, you know, as I mentioned, we are first focused very heavily on building cells out of the agility line because that's the one that we need to sample for our customers. The HVM line is coming right behind it. And we will work to make sure that the HVM line is ready and fully capable by the end of the year because the high volume ramp, as I mentioned before, will happen next year.

Speaker Change: Yeah, let me take a shot at it and then Ajay, you can add color to it. So if you talk about RAM, you know, as I mentioned, right, we are first focused very heavily on building cells out of agility line, because that's the one that we need to sample to our customers.

Ajay: The HVM line is coming right behind it.

Ajay: And we will work to make sure that the HVM line is ready and fully capable by the end of the year because the high volume ramp, as I mentioned before, will happen in next year. So we just need to make sure that we are ready. But our lot of energy is now on getting the agility line to the right level so we can actually make the samples of EX-1M, get it ready for EX-2M, and so on. And maybe there is a comment on scrap, isn't there?

Raj Talluri: So we just need to make sure that we are ready. But a lot of energy is now on getting the agility line to the right level. So we can actually make the samples for EX1M, get it ready for EX2M, and so on.

Ajay Marathe: So we just need to make sure that we are ready, but our lot of energy is now on getting the agility line to the right level so we can actually make the samples of EX1M, get it ready for EX2M and so on.

Farhan Ahmad: And maybe there is a comment on scrap. Is that it? Yeah, the comment was on the, I guess like he wanted to know the modeling and how they should be modeling the cost. Yeah, should I take it? Sure. Yeah, so it looked like there will be a lot of moving pieces on how you are thinking about the modeling. Our cost reductions that we have taken are going to be the predominant factor in terms of the overall cash burn and how that's going to be cracking in terms of the cash flow from operation. So Q3 should be better than Q2, and then Q4 should be better than Q3 overall.

Unknown Executive: And maybe there is a comment on scrap. Is that right? Yeah, the comment was on the, I guess, like,

Unknown Executive: The comment was on the, I guess like, he wanted to know the modeling and how they should be modeling the cost. Yeah. Should I take it?

Speaker Change: Yeah, the comment was on the, I guess like he wanted to know the modeling and how they should be modeling the cost. Yeah, should I take it? Sure. Yeah, so it looked like there will be a lot of moving pieces on how you're thinking about the modeling.

Farhan Ahmad: Sure. Yeah. So it looks like there will be, there are a lot of moving pieces to how you are thinking about the modeling. Our cost reductions that we have taken are going to be the predominant factor in terms of the overall cash burn and how that's going to be tracking in terms of the cash flow from operations. So Q3 should be better than Q2, and then Q4 should be better than Q3.

Speaker Change: Our cost reductions that we have taken are going to be the predominant factor in terms of the overall cash burn and how that's going to be tracking in terms of the cash flow from operations.

Speaker Change: Q3 should be better than Q2, and then Q4 should be better than Q3 overall, and that includes the expenses that are related to the scrap and

Farhan Ahmad: And that includes the expenses that are related to the scrap and the ramp of yield. Now, through the year, like you know, like our COGS will go up and the topics may come down, but in aggregate, like you know, the overall cost comments that I have will step.

Farhan Ahmad: And that includes the expenses that are related to the scrap and the ramp of yield. Now through the year, our COGS will go up, and the OPEX may come down, but in aggregate, the overall cost comments that I have.

Ajay: and the ramp field. Now through the year like you know like our COGS will go up and the OPEX may come down but in aggregate like you know the overall cost commons that I have will start.

Bill Peterson: Our next question comes from Bill Peterson of JP Morgan. Yeah, hi, thanks for taking the questions. Just on the smartphone market, and you've given a lot of color and the last few calls, but assuming that you're looking to maybe ramp in the back half of the next year and more mean thing to 2026, trying to get a sense of the milestones between now and let's say a year from now, which presumably when at least some of the customers will qualify.

Unknown Executive: Our next question comes from Bill Peterson of JP Morgan.

Speaker Change: Thanks so much, guys.

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

William Chapman Peterson: Yeah, hi, thanks for taking the questions. Just on the smartphone market, and you've given a lot of color in the last few calls, but assuming that you're looking to maybe ramp up in the back half of next year, and then more means being a 2026. Trying to get a sense of the milestones between now and, let's say, a year from now, which presumably is when at least some of the customers will So, first of all, can you remind us of the sampling cadence?

William Chapman Peterson: Yeah, hi, thanks for taking the questions. Just on the smartphone market, and you've given a lot of color in the last few calls, but assuming that you're looking to maybe ramp in the back half of next year and then more means being a 2026.

Speaker Change: Trying to get a sense of the milestones between now and, let's say, a year from now, which

Raj Talluri: So, first of all, can you remind us of the sampling cadence? I guess, you know, when you will be sampling EX1 across the all the smartphone makers this year, already EX2M later this year and then more volume later this year in the next year. I mean, you also mentioned earlier in the call that made more formal agreements. How should we think about that? Basically, what we're trying to get to is what should we be on the lookout for from a milestone perspective over the next year.

Speaker Change: Presumably when at least some of the customers will qualify. So first of all, can you remind us of the sampling cadence? I guess, you know, when will you be sampling EX1 across all the smartphone makers this year?

William Chapman Peterson: I guess, you know, when will you be sampling EX-1 across all the smartphone makers this year, or the EX-2M later this year and then more volume later this year and the next year? I mean, you also mentioned earlier in the call that there may be more formal agreements. How should we think about that? Basically, what we're trying to get to is what should we be on the lookout for from a milestone perspective over the next year?

Speaker Change: 30 EX-2M later this year and then more volume later this year and the next year. I mean, you also mentioned earlier in the call that you need more formal agreements. How should we think about that? Basically, what we're trying to get to is what should we be on the lookout for from a milestone perspective over the next year?

Raj Talluri: Yeah, sure, absolutely. So let me recap on what time we made. We made some samples before we shut down the free one factory and just to prove out that, you know, we can get the EX1M into the right form factor. We talked about that last time; we send those to some customers, but really the sampling most what most customers want is actually samples from our Malaysia factory, which is what where the production will be. And our target, as I mentioned last time, is to get those samples out in three Q, and then once we get those out to the customers, after doing some amount of testing on our site, we'll get to them and they will test them also and validate and make the right tradeoffs between energy density, you know, cycle life, ability to fast charge, and so on, and then they will give us, during this period that we're working with them.

Speaker Change: Yeah, sure, absolutely.

Speaker Change: Let me just recap one more time. We made some samples before we shut down the Fremont factory.

Speaker Change: and just to prove out that, you know, we can get the EX-1M.

Speaker Change: [inaudible]

Raj Talluri: is to get those samples out in 3Q. And then once we get those out to the customers, after doing some amount of testing on our side, we'll get them to them. And they will test them also, and validate and make the right trade-offs between energy density, you know, cycle life, ability to fast charge, and so on. And then they will give us during this period while we're working with them. The actual dimensions of the battery, you know, what shape it should be. How many milliamp hours?

Speaker Change: Our target, as I mentioned last time, is to get those samples out in 3Q and then once we get those out to the customers, after doing some amount of testing on our side, we'll get to them and they will test them also and validate and make the right trade-offs between

Speaker Change: Energy Density, Cycle Life, Ability to Fast Charge, and so on. And then they will give us, during this period that we are working with them,

Raj Talluri: The actual dimensions of the battery, you know, what shape it should be, how many milliampars and so on, because the phone models next year will have different shape batteries and the phone models this year, and we will get that feedback in a later part of the year, and then we will need to adjust our tooling to actually make those kind of batteries and get those to them next year. And they typically then put those in their phone models, and when they're making a phone that they're going to launch next year, and they're going to test one more time to make sure the batteries do what they're supposed to do in the phone, not, you know, because initial testing this year will be in isolation, not in the phone.

Speaker Change: The actual dimensions of the battery, you know, what shape it should be.

Speaker Change: How many milliamp hours?

Speaker Change: and so on, because the phone models next year will have different shaped batteries than the phone models this year, and we will get that feedback in the later part of the year.

Speaker Change: and then we will need to adjust our tooling to actually make those kind of batteries.

Speaker Change: and get those to them next year.

Speaker Change: And they typically then put those in their phone models and when they're making a phone that they're going to launch next year, and they're going to test one more time to make sure the batteries do what they're supposed to do in the phone, not, you know, because initial testing this year will be in isolation, not in the phone.

Raj Talluri: And if everything goes well, and things look good, and the qualifications happen on time, you know, they will place purchase orders, and we'll need to ramp that up to manufacturing. As I mentioned, we are working with multiple customers, and many of them will get samples. And we just continue to work through one at a time. Meanwhile, as I mentioned, we are working on agreements that will actually talk about formalizing this process that I just mentioned.

Raj Talluri: And if everything goes well and things look good and the qualifications happen on time, you know, they will place purchase orders and we will need to ram that demand factoring. As I mentioned, we are working with multiple customers, and many of them will get samples, and we just continue to work through one at a time.

Speaker Change: And if everything goes well and things look good and the qualifications happen on time, you know, they will place purchase orders and we'll need to ramp that to manufacturing. As I mentioned, we are working with multiple customers and many of them will get samples and we just continue to work through one at a time.

Raj Talluri: Meanwhile, as I mentioned, we are working on agreements that actually talk about. Formalizing this process that I just mentioned, and we announced one of them last time, and we're working on others to do something similar. And that's for the X to M. You know, the first focus is I'm getting a X one M, X to M. We made early samples, as I mentioned, free month.

Speaker Change: Meanwhile, as I mentioned, we are working on agreements that will actually talk about formalizing this process that I just mentioned, and we announced one of them last time, and we're working on others to do something similar.

Raj Talluri: And we announced one of them last time, and we're working on others to do something similar. And as for EX-2M, our first focus is on getting EX-1M. For EX-2M, we made early samples, as I mentioned, in Fremont. The next step is to perfect that and make those again in Malaysia and get that ready for production for 2016.

Speaker Change: And as for EX-2M, you know, our first focus is on getting EX-1M. EX-2M, we made early samples, as I mentioned, in Fremont. The next step is to perfect that and make those again in Malaysia and get that ready to production for 26.

Raj Talluri: The next step is to perfect that and make those again in Malaysia and get that ready to production for 26.

Bill Peterson: Yeah, thanks, Raj. And on this newly announced IoT agreement with the Fortune 200, I guess, does this company make other form factors like smart clones? Is this something synergistic with what you're doing. Or is this, you know, for just small, is this for small batteries or maybe large batteries and trying to get a sense for the financial ramifications of this.

William Chapman Peterson: Yeah, thanks, Raj. And on this newly announced IoT agreement with the Fortune 200, I guess does this mean this company makes other form factors like smartphones? Is this something synergistic with what you're doing? Or is this, you know, for just small batteries, or maybe large batteries, and trying to get a sense for the financial ramifications of this, you know, for going to market timing, the economics, I mean, the milestone payments, just how to think about this agreement and how it will affect you

Raj: Thanks, Raj. On this newly announced IoT agreement with the Fortune 200, I guess, does this company make other form factors like smartphones? Is this something synergistic with what you're doing?

Speaker Change: [inaudible]

Raj Talluri: You know, to go to market timing, the economics, I mean, how, how you milestone payment, just how to think about this agreement and how it's the impact of financials. Yeah, yeah, great question. You know, I mean, you know, as you can imagine, there will be a little as a early stage coming in that is working with big companies. We are little limited in what the companies allow us to say and allow us not to say, because they do have in common suppliers and so on. But I can tell you this much though, there's a tremendous amount of interest in what we're able to build, and they're not able to get that kind of battery that we are talking about from their current base; that's why they're working with us.

Speaker Change: You know, the go-to-market timing, the economics, I mean, milestone payments, just how to think about this agreement and how it should impact your financials.

Raj Talluri: Yeah, yeah, great question. You know, I mean, as you can imagine, Bill, we are a little limited in what the companies allow us to say and what they do not allow us to say, because they do have incumbent suppliers and so on. But I can tell you this much, though: there's a tremendous amount of interest in what we're able to build, and they're not able to get that kind of battery that we are talking about from their current base.

Speaker Change: Yeah, yeah, great question. You know, I mean, you know, as you can imagine, Bill, we are a little, as an early stage company that is working with big companies, we are a little limited in what the companies will allow us to say and allow us not to say, because they do have incumbent suppliers and so on. But I can tell you this much, though, there's tremendous amount of interest in what we're able to build.

Speaker Change: They're not able to get that kind of battery that we are talking about from their current base. That's why they're working with us.

Raj Talluri: I would say this; I think the press release said it. It's a product that's got a large install base already of products in the market, so we'll be, you know, replacing the batteries and some of them. So, in that sense, it's not a new category of product; it's a product that's out there. So, that's one aspect of it: is that it's an established market.

Speaker Change: I would say this, I think the press release said it, it's a product that's got a large install base already of products in the market. So we'll be, you know, replacing the batteries and some of them. So in that sense, it's not a new category of product. It's a product that's out there. So that's one aspect of it is that it's an established market.

Raj Talluri: The second one is, you know, many of our engagements nowadays, we talk about milestone-based payments because we will need to make custom size batteries for these things, and we need to put a bunch of variety resources on that, and there's opportunity cost of all of that. And the exciting thing is the customers that we link to pay for that based on milestones, and that shows the value of the technology we bring and the differentiation we can offer to our customers.

Speaker Change: The second one is, you know, in many of our engagements nowadays, we talk about milestone based payments, because we will need to make custom sized batteries for these things. And we need to put a bunch of our R&D resources on that. And there's opportunity cost of all of that.

Raj Talluri: That's why they're working with us, investing a bunch of our R&D resources in that. And there's the opportunity cost of all of that. And the exciting thing is that customers are willing to pay for that based on milestones. And that shows the value of the technology we bring and the differentiation we can offer to our customers. So I think that part is exciting. And we'll be, you know, absolutely. I understand where you're coming from. And we'll try to provide as much color and detail as we can, as our customers allow us to do. And the only other thing I would add

Speaker Change: And the exciting thing is the customers are willing to pay for that based on milestones and that shows.

Speaker Change: The value of the technology we bring and the differentiation we can offer to our customers. So I think that part is exciting. And we'll be, you know, absolutely, I understand where you're coming from, and we'll try to provide as much color and detail as we can, as our customers allow us to do.

Raj Talluri: So I think that part is exciting and will be, you know, absolutely. I understand where you're coming from, and we will try to provide as much color and detail as we can, as our customers are always to do. And the only other thing I would add, and it's was in the press release that the customers in this case do care about energy density, and they are willing to pay a premium for the energy density as well over what's available more broadly in the month.

Raj Talluri: And the only other thing I would add, and it was in the press release, that customers in this case do care about energy density, and they are willing to pay a premium for it as well over what's available more broadly in the market.

Speaker Change: And the only other thing I would add, and it was in the press release, that the customers, in this case, do care about energy density, and they are willing to pay a premium for the energy density as well, over what's available more broadly in the market.

Farhan Ahmad: Thanks, Raj and Farhan.

Jed Dorsheimer: Our next question comes from Jed Dorsheimer, William Blair. Hi, thanks for taking my question, and congrats on the fab. Looking forward to seeing things. I guess, you know, my first question is just around the commentary. I think Ajay mentioned that yields would be similar to free month. And I'm wondering, is that specific to agility, or is that because my understanding was that the high volume was going to be more in the 95% type. range, or is sort of the 60% free month kind of that the starting point, and you're going to ramp towards, and then I have a follow-up.

Unknown Executive: Our next question comes from Jed Dorsheimer, called William Blair.

Speaker Change: Thanks Raj and Farhan.

Speaker Change: Our next question comes from Jed Dorsheimer, William Blair.

Jed Dorsheimer: Hi, thanks for taking my question and congrats on the fab job. Looking forward to seeing things.

Jed Dorsheimer: Hi, thanks for.

Jed Dorsheimer: Taking my question and congrats on the fab, looking forward to seeing things. I guess, you know, my first question is

Jed Dorsheimer: I guess, you know, my first question is just around the commentary. I think Ajay mentioned that yields would be similar to Fremont. And I'm wondering, is that specific to agility? Or is that because my understanding was that the high volume was going to be more in the 95% type range? Or is sort of the 60% Fremont kind of the starting point and you're going to ramp up towards, and then I have a follow-up?

Jed Dorsheimer: Just around the commentary, I think Ajay mentioned that

Speaker Change: that yields would be similar to Fremont. And I'm wondering, is that specific to agility? Or is that because my understanding was that the high volume

Jed Dorsheimer: was going to be more in the 95% type range, or is sort of the 60% Fremont, kind of that, the starting point and you're going to ramp towards and then I have a follow up.

Raj Talluri: Yeah, I mean, just, just you know, I'll say a little bit about yields, and then I'll let Ajay at color. You know, look, essentially, this business makes sense when we get to very high 90 plus 95 plus percent their yields when we're in high volume manufacturing. And that has always been all goal. And Ajay mentioned that before. That's where we will be, and we aspire to be, and we need to be when we get to high volume. The question is really about where we start and where we end up. Our goal has always been to, you know, looking at what we were able to do and where we ended in free month.

Raj Talluri: Yeah, I mean, just, you know, I'll say a little bit about yields, and then I'll let Ajay add color.

Speaker Change: Yeah, I mean, just, you know, I'll say a little bit about yields, and then I'll let Ajay add colors, you know, look, essentially...

Jed Dorsheimer: This business makes sense when we get to very high 90-plus, 95-plus percentage yields when we're in high-volume manufacturing. And that has always been our goal, and Ajay mentioned it before.

Ajay: That's where we will be, and we aspire to be, and we need to be when we get to high volume. The question is really about where we start and where we end up. Our goal has always been to...

Ajay Marathe: We can start from there because we've learned what needs to be done, and then study the increase them as we get to high volume.

Speaker Change: Raj Talluri, Farhan Ahmad

Raj Talluri: You know, look, essentially, this business makes sense when we get to very high 90 plus 95 plus percent yields when we're in high volume manufacturing. And that has always been our goal. And I mentioned that before; that's where we will be. And we aspire to be, and we need to be when we get to high volume. The question is really about where we start and where we end up. Our goal has always been to, you know, looking at what we were able to do and where we ended up in Fremont, we can start from there. Because we've learned what needs to be done, and then steadily increase it as we get to high volume. I think that's, but Ajay, go ahead if there's more color you want to add. Yeah, sure.

Ajay Marathe: I think that's, but Ajay, go ahead. This is more color you want to add.

Ajay Marathe: Yeah, sure, Raj. Yes, so first of all, differentiating between agility and HVM is not necessarily the right thing to do or the right thing to look at because both agility and HVM colonels are identical. So when we do the learning son agility, we begin where we want to left off, as I said, and we quickly ramp it to the mid to high 90s. As we have always said, that will be immediately applicable to the HVM lines. HVM line is just slightly behind Agility. As Raj mentioned, we have finished the FAT already for the HVM line.

Ajay Marathe: Yeah, sure, Raj. Yeah, so first of all, differentiating between agility and HVM is not necessarily the right thing to do or the right thing to look at, because both agility and HVM kernels are identical. So when we do the learnings on agility, we begin where Primod left off, as I said, and we quickly ramp it up to the mid to high 90s. As we have always said, that will be immediately applicable to the HVM lines.

Raj Talluri: Yeah, sure, Raj. Yes. So first of all, differentiating between agility and HVM is not necessarily the right thing to do or right thing to look at. Because both agility and HVM kernels are identical. So when we do the

Speaker Change: Learnings on Agility, we begin where Primod left off, as I said, and we quickly ramp it to the mid to high 90s, as we have always said. That will be immediately applicable to the HVM.

Ajay Marathe: The HVM line is just slightly behind agility. As Raj mentioned, we have already finished the FAT for the HVM line. The equipment is already installed for the most part. There are some laggards coming in literally in the next couple of weeks. And we'll begin, you know, a similar ramp as we are now doing on agility. So the focus is on agility now, get the yields up to where we need and where we desire, and then carry the learnings immediately on the HPM line behind it.

Jed Dorsheimer: Got it. That's helpful. Thanks.

Jed Dorsheimer: HVM line is just slightly behind Agility. As Raj mentioned, we have finished the FAT already for the HVM line. The equipment is already installed for the most part. There are some laggards coming in literally in the next couple of weeks.

Ajay Marathe: The prediction is already installed for most part is some laggards coming in literally in the next couple of weeks. And we will begin, you know, similar ramp as we are now doing our agility. So the focus is on agility now; get the yields up to the where we need. And where we desire and then carry the learnings immediately on the HVM line behind it. Got it.

Raj Talluri: And we will begin, you know, similar ramp as we are now doing on agility. So the focus is on agility now, get the yields up to where we need and where we desire, and then carry the learnings immediately on the HPM line behind it.

Ajay Marathe: That's helpful. Thanks.

Jed Dorsheimer: And then Farhan, just as my follow up. You know, it seems like it's going to you've got a few different moving parts here. And so, as you ramp IoT on agility. You know, you recognize those revenues; the costs are going to come. How are you thinking about the under utilization and allocating the costs is the high volume line ramps around samples. Does that trigger that recognition, or would samples, does that, does that get put off until you're selling to the customers? Just the mechanics of that might be useful.

Speaker Change: Got it. That's helpful. Thanks. And then Farhan, just as my follow up.

Farhan Ahmad: And then Farhan, just as my follow-up, As you know, it seems like you've got a few different moving parts here. And so as you ramp up IoT on agility, you recognize those revenues; the costs are going to come. How are you thinking about the underutilization and allocating the cost of the high volume line ramps around samples? Does that trigger that recognition or or would it not? Do does that get put off until until you're selling to the customer? Just the mechanics of that might be useful.

Farhan: You know, it seems like it's going to you've got a few different moving parts here. And so as you ramp IoT on agility,

Farhan: You know, you recognize those revenues, the costs are going to come. How are you thinking about the underutilization and allocating the costs is

Speaker Change: The high volume line ramps around samples. Does that trigger that recognition or or would samples? Does that does that get put off until until you're selling to the customers?

Farhan Ahmad: So the devil's in the detail, Judd, and it will depend on the contacts that we have and accounting policies.

Jed Dorsheimer: So the devil's in the detail, Jed, and it will depend on the contacts that we have and accounting policies, which are, you know, very technical; there's a lot of technical accounting involved. And so I would say that, look, Ultimately, it's a non-cash charge; it doesn't really matter how you're thinking about the cash. The depreciation will start hitting once the tool is recognized as being in production, and there are different ways in which you can depreciate it and that part, so we have to finalize it in terms of how exactly we're going to be depreciating it. So I'll leave that question somewhat unanswered for you, Jed, right now, but it is a non-cash item.

Speaker Change: Just the mechanics of that might be useful.

Jed Dorsheimer: So the devil's in the detail, Jed, and it will depend on the contacts that we have and accounting policies.

Farhan Ahmad: David. There's a lot of technical accounting on it, and so I would say that, ultimately, it's a non-cash charge. It doesn't really matter on how you're thinking about the cash. The depreciation will start hitting as once the tool is recognized as being in production. And there are different ways in which you can depreciate it in that part, so we have to finalize it. In terms of how exactly we're going to be depreciating it.

Jed Dorsheimer: are like, you know, very technical, there's a lot of technical accounting on it. And so I would say that, look,

Speaker Change: Ultimately it's a non-cash charge. It doesn't really matter on how you're thinking about the cash. The depreciation will start hitting once the tool is recognized as being in production.

Speaker Change: And there are different ways in which you can depreciate it and that part, so we have to finalize it in terms of how exactly we're going to be depreciating it. So I'll leave that question somewhat unanswered for you Jed right now, but it is a non-cash item.

Farhan Ahmad: So I'll leave that question somewhat unanswered for you, Jed, right now, but it is a non-cash item.

Jed Dorsheimer: Thanks. I'll jump back in the queue and look forward to next week.

Unknown Executive: Thanks a lot. I'll jump back in the queue and look forward to next week. Thanks. Thanks, Jed.

Jed Dorsheimer: Thanks. I'll jump back in the queue and look forward to next week. Thanks.

Gabe Dowd: Our next question is from Gabe Dowd of Cowan.

Gabriel J. Daoud: Our next question is from Gabe Daoud of Cowan.

Jed Dorsheimer: Thanks Jed.

Jed Dorsheimer: Our next question is from Gabe Daoud of Cowen.

Gabe Dowd: Hey guys, sorry about that. Was on mute. Thanks for taking my questions. I was hoping we can maybe go back to Bill's question just around cadence. So if you ship cells from Premon and May and call it 9 to 12 qualifications, 9 to 12 month qualification period, which would next May maybe next June. Should we, is that maybe like when we could expect a first PO from a potential customer, maybe for the second half of next year, is that still the case? Yeah, I mean it all depends upon when the customer finishes their qualification, and I explain the process of how the qualification goes in terms of when we give you the first samples, when they give the exact size of it, when we get it from Malaysia.

Gabriel J. Daoud: Hey guys, sorry about that. I was on mute. Thanks for taking my questions. I was hoping we could maybe go back to Bill's question just around cadence. So if you ship sales from Fremont in May and call it 9 to 12, a 9 to 12 month qualification period, which is next May, maybe next June, should we, is that maybe like when we could expect a first CO from a potential customer, maybe for the second half of next year? Is that still the case?

Gabriel J. Daoud: Hey guys, sorry about that, I was on mute. Thanks for taking my questions. Hoping we can maybe go back to Bill's question just around cadence.

Speaker Change: So if you ship cells from Fremont in May and

Gabriel J. Daoud: I think we call it 9-12 month qualification period, put you at next May, maybe next June . Is that maybe like when we could expect a first CO from a potential customer? Maybe for the second half of next year, is that still the case?

Raj Talluri: Yeah, I mean, again, it all depends upon when the customer finishes their qualification. And I explained the process of how the qualification goes in terms of when we give the first samples, when they give the exact size of it, and when we get it from Malaysia. So typically, customers place orders when they feel the product is qualified in their phone, and they're ready for us to make high volume products. So I would leave it as, you know, later half of next year is what we said before, and we'll continue to say the same thing because it's, you know, once they get samples from Malaysia, they start testing them, that's when we'll know more.

Speaker Change: Yeah, I mean, again, it all depends upon when the customer finishes their qualification and I explained the process of how the qualification goes in terms of

Speaker Change: Raj Talluri, Farhan Ahmad

Raj Talluri: So typically customers place orders when they feel the product is qualified in their phone and they're ready for us to make high volume products. So I would leave it as, you know, later half of next year is what we said before, and it will continue to say the same thing because it's, you know, once they get, once they get samples from Malaysia, they start testing them, that's when we'll know more. Okay, okay, and that's so it is imperative and to assume that it's still thinking about multiple lines and 26. Yeah, when we put more lines, we will depend upon again, how many, you know, customers are ramping, how fast, whether we are in a very high volume product or whether we are in a lower volume product first and then the next product.

Speaker Change: and and they're ready for us to make make high-volume products so I would leave it as you know later half of next year is what we said before and we'll continue to say the same thing because it's you know once they get once they get samples from Malaysia they start testing them that's when we'll know more

Gabriel J. Daoud: Okay, okay. And that's still, is it fair then to assume that you're still thinking about multiple lines in 26?

Speaker Change: Okay, okay. And that's still, is it fair then to assume that you're still thinking about multiple lines in 26?

Raj Talluri: Yeah, when we put more lines in, it will depend again on how many, you know, customers are ramping up how fast whether we are in a very high volume product, or whether we are a lower volume product first, and then the next product. So that depends upon the timing of the volumes. What we are doing is, we do have a facility that can hold up to four lines. And Ajay and his team have facilitated that. And we're looking at all the long-lean items and which ones we should get out more, you know, get ahead of them. But clearly, that is our goal that we'll have multiple lines in 20.

Speaker Change: Yeah, when we put more lines will will depend upon again, how many, you know, customers are ramping how fast whether we are in a very high volume product or whether we are a lower volume product first, and then the next product.

Raj Talluri: So that depends upon the timing of the volumes. What we are doing is we do have a facility that can hold up to four lines. And Ajay and the stream are facilitated as that and we're looking at all the long lean items and which ones we should get out more, you know, get ahead of them, but clearly that is our goal that will have multiple lines and 26.

Speaker Change: So that depends upon the timing of the of the volumes. What we are doing is...

Ajay: We do have a facility that can hold up to four lines, and Ajay and his team have facilitated that. And we are looking at all the long lean items and which ones we should get out more, you know, get ahead of them. But clearly, that is our goal that we'll have multiple lines in 26.

Raj Talluri: Got it, got it. Okay, great. Thanks for us and then just the follow up if we look at top tech Chinese mobile phones, but maybe 800 or so while I was per liter. Could you maybe quantify then what EX1M is relative to that figure and what EX2M is relative to that figure, you know, did some of the prototypes of EX2M and encourage you to really hit your energy density targets. It just curious if you could try those again. I recognize battery is all about trade-off, but just curious at least what the initial energy density number is.

Gabriel J. Daoud: Got it. Okay, great. Thanks, Raj.

Speaker Change: Got it. Got it. Okay. Great. Thanks, Raj. And then just a follow-up. If we look at top-spec Chinese mobile phones with maybe 800 or so watt-hours per liter,

Raj Talluri: And then just to follow up, if we look at top-spec Chinese mobile phones with maybe 800 or so watt hours per liter, could you maybe quantify then what EX-1M is relative to that figure and what EX-2M is relative to that figure? You noted that some of the prototypes of EX-2M have encouragingly hit your energy density targets. I'm just curious if you could share those. Again, I recognize that. Batteries are all about trade-offs, but I was just curious at least what the initial energy density number is. Thanks guys. Yeah

Speaker Change: Did you maybe quantify then what EX-1M is relative to that figure and what EX-2M is relative to that figure? You noted some of the prototypes of EX-2M have encouragingly hit your energy density targets. I'm just curious if you could share those. Again, I recognize...

Speaker Change: Battery is all about trade-offs, but just curious at least what the initial energy density number is. Thanks guys.

Raj Talluri: Thanks. Yeah, you know, I think it's really not a fair representation. I've maintained this over the last many, many quarters. People like to describe batteries by one number, and it's really hard. It's like describing an app spresser by megahertz or gigahertz. These are not that kind of products. It depends upon cycle life. It depends upon fast charge. If you actually take the batteries in all the smartphones out there and start looking at them, you will get a very set of numbers. What's most important is the battery be competitive and energy density while satisfying all those requirements to be in the phone.

Raj Talluri: Yeah, you know, I think it's really not a fair representation. I've maintained this over the last many, many quarters.

Speaker Change: Yeah, you know, I think it's really not a fair presentation. I've maintained this over the last many, many quarters.

Raj Talluri: People like to describe batteries by one number, and it's really hard. It's like describing an application processor by megahertz or gigahertz. These are not that kind of products.

Speaker Change: People like to describe batteries by one number, and it's really hard. It's like describing an apps processor by megahertz.

Raj Talluri: It depends upon the cycle life. It depends upon the fast charge. If you actually take the batteries in all the smartphones out there and start looking at them, you will get a varied set of numbers. What's most important is the battery be competitive in energy density while satisfying all the other requirements to be in the phone. Customers are working with us because they see the energy density we provide, and they see the roadmap that we have.

Speaker Change: and Gigahertz.

Speaker Change: These are not that kind of products. It depends upon cycle life. It depends upon fast charge. If you actually take the batteries in all the smartphones out there and start looking at them, you will get a varied set of numbers.

Speaker Change: What's most important is the battery be competitive in energy density while satisfying all the other requirements to be in the phone. Customers are working with us because they see the energy density we provide and they see the roadmap that we have. And ultimately the trade-offs they'll make and exactly where the ED will be.

Raj Talluri: Customers are working with us because they see the energy density we provide and they see the roadmap that we have, and ultimately the trade-offs they'll make and exactly where the eD will be. You will be able to, you know, once we are in production, once the phones are out, you'll be able to take out and measure them to see what exactly the trade-offs the customers have made because we don't control all of that. The customers will decide to use them differently. It's definitely based on what phone they put in and which markets they're selling in and what features they tend to highlight.

Raj Talluri: And ultimately, the trade-offs they'll make and exactly where the ED will be, you will be able to, you know, once we are in production, once the phones are out, you'll be able to take them out and measure them to see what exactly the trade-offs the customers have made because we don't control all of that. The customers will decide to use them differently based on what phone they put in them, in which markets they're selling in, and what features they tend to highlight.

Speaker Change: You will be able to, you know, once we are in production, once the phones are out, you'll be able to take out and measure them to see what exactly the trade-offs the customers have made, because we don't control all of that. The customers will decide to use them differently based on what phone they put in and which markets they're selling in and what features they tend to highlight.

Gabriel J. Daoud: Got it. That's very helpful. Thanks for asking for us.

Raj Talluri: It's very helpful.

Raj Talluri: Thanks, Rose.

Speaker Change: Got it. That's very helpful. Thanks, Rose.

Derek Soderberg: Our next question is from Derek Sotoberg with Cantor. Yeah, hey guys. Thanks for taking my question.

Unknown Executive: Our next question is from Derek Soderberg of Cantor.

Speaker Change: Our next question is from.

Derek John Soderberg: Derek Soderberg of Cantor

Derek John Soderberg: Yeah, hey guys, thanks for taking my question. And I'm also looking forward to seeing the facility next week.

Raj Talluri: And I'm also looking forward to seeing the facility next week. Rose, you mentioned a smartphone OEM that's cleared two key milestones. How should we think about those milestones in terms of that sort of nine to twelve month called patient schedule. Does it speed up that's scheduled all just wondering if you can kind of frame how we should interpret that commentary with milestones achieved as it relates to commercialization. Yeah, you should interpret that as things are on track is like how we expected that we would do it. I mean the contract specified we need to do this by this time. We need to do this by this time. We need to do this by this time.

Derek John Soderberg: Yeah, hey guys, thanks for taking my question. And I'm also looking forward to seeing the facility next week.

Raj Talluri: Raj, you mentioned a smartphone OEM that's cleared two key milestones. How should we think about those milestones in terms of that sort of nine to 12 month qualification schedule? Does it speed up that schedule at all? Just wondering if you could kind of frame how we should interpret that commentary with respect to milestones achieved as it relates to commercialization. And then I've got a follow-up. Yeah, you shouldn't have

Derek John Soderberg: Raj, you mentioned a smartphone OEM that's that's cleared two key milestones. How should we think about those milestones in terms of that sort of nine to 12 month qualification schedule? Does it speed up that schedule at all? Just wondering if you can kind of

Speaker Change: Frame how we should interpret that commentary with milestones achieved as it relates to commercialization. Then I've got a follow-up.

Raj Talluri: Yeah, you should interpret it as things are on track; it's like how we expected that we would do it. I mean, the contract specified that we need to do this by this time, we need to do this by this time, we need to do this by this time. As I mentioned, you know, the process is we give samples, they test them, they do the safety testing, then they test the ED, and so on. Then they give us the exact shape of the battery, then we make them, and there's a whole bunch of stuff that's laid out in these contracts.

Raj Talluri: Yeah, you should interpret it as things are on track, is like how we expected that we would do it. I mean, the contract specified, we need to do this by this time, we need to do this by this time, we need to do this by this time, as I mentioned.

Raj Talluri: As I mentioned, you know, the process is we give samples, they test them, they do the safety testing, then they test the ED and so on, then they give us the exact shape of the battery. Then we make them and there's a whole bunch of stuff that's laid out in this contract.

Speaker Change: You know the process is we give samples they test them they do the safety testing then they test the ED and so on then they give us the exact shape of the battery then we make them and there's a whole bunch of stuff that's laid out in these contracts and we're on track to do those and

Raj Talluri: And we're on track to do those, and you know, I hope everything goes smoothly, and we'll get them to production as quickly as we can. Got it.

Raj Talluri: And we're on track to do those. And, you know, I hope everything goes smoothly, and we'll get them into production as quickly as we can.

Speaker Change: I hope everything goes smoothly and we'll get them to production as quickly as we can.

Derek John Soderberg: Got it. And then, as a follow-up, in the shareholder letter, there was some wording around trends in the diversity of suppliers in the industry. Raj, can you elaborate on that a bit? I'm curious, you know, first, which end markets that that applies to? Is it more smartphones? Is it broad-based? And just generally, how does, you know, this diversification trend fit into the scale strategy? Thanks. Yeah, it's a you know, the comment is based on the fact that I think there is one.

Raj Talluri: And then, as my follow-up in the shareholder letter, there was some wording around trends in diversity of suppliers in the industry. Raj, can you elaborate on that a bit? I'm curious, you know, first which end markets, you know, that that applies to. Is it more smartphones? Is it broad based? And just generally how does, you know, this diversification trend fit into the scale strategy. Thanks. Yeah, it's a, you know, the comment is based on the fact I think there is a question at the beginning of the conference of the call. We are seeing a lot of, I would say, customers preferring to go with, you know, not American battery manufacturers with all the geopolitical uncertainties and the tariffs and so on, and they're looking for different suppliers.

Raj Talluri: Got it. And then as my follow up, in the shareholder letter, there was some wording around trends in diversity of suppliers in the industry. Raj, can you elaborate on that a bit? I'm curious.

Speaker Change: First, which end markets that applies to? Is it more smartphones? Is it broad-based? And just generally, how does this diversification trend fit into the scale strategy? Thanks.

Raj Talluri: Yeah, you know, the comment is based on the fact I think there is a question at the beginning of the conference call. We are seeing a lot of, I would say, customers preferring to go with, you know, North American battery manufacturers with all the geopolitical uncertainties and the tariffs and so on. And they're looking for different suppliers. And you know, we are one of the few, if not the only, who can make batteries into consumer electronic devices in this market. So I think we're getting good, I would say tailwinds in that front.

Raj Talluri: Yeah you know the comment is based on the fact I think there is a question at the beginning of the conference of the call. We are seeing a lot of I would say customers preferring to go with

Speaker Change: North American battery manufacturers with all the geopolitical uncertainties and the tariffs and so on. And they're looking for different suppliers. And we are one of the...

Raj Talluri: And you know, we are one of the few, if not the only, who can make batteries into consumer electronic devices in this market. So I think we're getting good. I would say tailwinds in that front, and that's what that comment is meant to highlight.

Speaker Change #101: Raj Talluri, Farhan Ahmad

Raj Talluri: And that's what that comment is meant to highlight.

George Gianarikas: Our next question comes from George Gianarikas of Canaccord. Hey everyone, thank you for taking my questions. Maybe just to focus on the margin potential as you continue to round out customers looking into 25 and 26. How do the recent discussions that you've had, you know, particularly with the announcement that you made today, inform your cash, gross margin, and overall margin targets over the next couple of years.

George Gianarikas: Our next question comes from George Gianarikas of Canaccord.

George Gianarikas: Hey everyone, thank you for taking my question. Um, maybe just to focus on the margin potential as you continue to round out customers, uh, looking into 25 and 26, how do the recent discussions that you've had, you know, particularly with the announcement you made today, and how do they inform your cash gross margin and overall margin targets over the next couple of years?

Speaker Change: Our next question comes from George Gianarikas of Canaccord.

George Gianarikas: Hey everyone, thank you for taking my questions.

George Gianarikas: Maybe just to focus on the margin potential, as you continue to round out customers looking into 25 and 26, how do the recent discussions that you've had

George Gianarikas: You know, particularly with the announcement you made today and how do they inform your cash gross margin and overall margin targets over the next couple of years? Thank you.

Raj Talluri: Thank you. Yeah, the IoT customers that we have disclosed in our earlier instance, they have a price points which, when the technology is at scale, will give us good margins when we are in scale with multiple lines. So the price point itself, there is a sufficient premium and, you know, it can't support a very healthy level of margins and naturally, it validates our assumptions that we had in our long term model.

Farhan Ahmad: Yeah, the IoT customers that we have disclosed in our earlier arrangements. They have price points that when the technology is scaled, will give us good margins when we are in scale with multiple. So the price point itself, there is a sufficient premium, and you know, it can support a very healthy level of margins, and actually, it validates our assumptions that we had in our long-term model.

Speaker Change: There are IoT customers that we have disclosed in our earlier arrangements.

Speaker Change: They have price points which, when the technology is at scale, will give us good margins when we are in scale with multiple lines.

Speaker Change: So the price point itself, there is a sufficient premium and it can support very healthy level of margins and actually it validates our assumptions that we had in our long-term model.

Raj Talluri: Thank you.

George Gianarikas: Thank you. And maybe as a follow-up, I'm curious about the discussions that you've had with EVOEMs and as you continue to kind of work through those. Maybe two parts.

Raj Talluri: And maybe as a follow-up, I'm curious about the discussions that you've had with the EV OEMs. And as you continue to kind of work through those, maybe two parts. First, to the extent you have his ability on this kind of stuff, given that it's very early stage, what sort of model years would we expect any sort of batteries to show up in any of these. And second, you know, as you continue to contemplate which business model you'll deploy to enable EV batteries, where are you leaning towards in your thinking?

Speaker Change: Thank you, and maybe as a follow-up, I'm curious...

Speaker Change: about the discussions that you've had with EVOEMs and as you continue to kind of work through those.

George Gianarikas: First, to the extent you have visibility on this kind of stuff, given that it's in the very early stage, what sort of model years would we expect any sort of batteries to show up in EVs? And second, as you continue to contemplate which business model you'll deploy to enable EV batteries, where are you leaning in your thinking? Thank you.

Speaker Change: May be two parts. First, to the extent you have visibility on this kind of stuff, given that it's very early stage, what sort of model years?

Speaker Change: would we expect any sort of batteries to show up in EVs? And second, as you continue to contemplate which business model you'll deploy to enable EV batteries, where are you leaning towards in your thinking? Thank you.

Raj Talluri: Thank you. Yeah, you know, I'll take a stab at it, and Farhan can handle some more in the model. You know, I think these, you know, EVs take much longer to go to production. As you guys know, I think what is exciting about this announcement is that, you know, we had always talked about the fact that our battery has a couple of. Key advantages in the market, one is the ability to charge fast without heating up. And the second one is any kind of material that's trying to put high energy density is still swelling, and we can control that.

Raj Talluri: Yeah, you know, I'll take a stab at it, and Farhan can handle some more on the model. You know, I think these EVs take much longer to go into production, as you guys know. I think what is exciting about this announcement is that, you know, we have always talked about the fact that our battery has a couple of key advantages in the EV market. One is the ability to charge fast without heating up. And the second one is any kind of material that's trying to put a high energy density in it is still swelling, and we can control that.

Speaker Change: Yeah, you know, I'll take a stab at it and Farhan can handle some more on the model, you know, I think these, you know, EVs take much longer to go to production as you guys know, I think what is exciting about this announcement is that

Speaker Change: We had always talked about the fact that our battery has a couple of key advantages in the EV market. One is the ability to charge fast without heating up, and the second one is any kind of material that's

Farhan Ahmad: And those two, we've presented to the EVMs and the EV auto EVMs, you know, OEMs, and they like it and they have signed, you know, agreements with us to jointly develop this technology to the point where it can be deployed in their cars. That's where that is, and you'll take a couple more years for us to get to that stage in terms of production. If you ask me today, I'd say we pursue, you know, less capital intensive licensing kind of model because we are busy building factories for the consumer stuff. But I don't know, Farhan, if you want anything more.

Speaker Change: Raj Talluri, Farhan Ahmad

Raj Talluri: And those two, we presented to the EVMs and the EVs, and the auto EVMs, and the OEMs, and they liked them. And they have signed, you know, agreements with us to jointly develop this technology to the point where it can be deployed in their cars. That's where that is.

Speaker Change: Raj Talluri, Farhan Ahmad

Speaker Change: That's where that is. It'll take, you know, a couple more years for us to get to that stage.

Speaker Change: In terms of production...

Speaker Change: If you ask me today, I'd say we'd pursue a...

Raj Talluri: It'll take, you know, a couple more years for us to get to that stage. In terms of production, if you ask me today, I'd say we'd pursue a, you know, less capital-intensive licensing kind of model because we are busy building factories for the consumer stuff. But I don't know, Farhan, if you want anything more to add.

Speaker Change: Farhan, what are your thoughts on the EV market?

Farhan Ahmad: No, I think, yeah, that covers it, Raj. I think overall, when I think about the EV market, the value proposition that we are bringing there is, hey, we have IP that has value in this market. We don't want to comment on a lot of capital, we are very... limited, and how much R&D we are spending. So the idea is that we will have a limited amount of investment, we'll take our IP, and then we'll have our customers pay for a lot of the development expenses.

Farhan Ahmad: Now, I think I like that covers the project overall when I think about the EV market. The value proposition that we are bringing there is, hey, we have IP that has got value to this market. We don't want to commit a lot of capital. We are very limited in how much on India we are spending. So the idea is that we will have a limited amount of investment. We will take our IP, and then we'll have our customers pay for lot of the development expenses. And then, as this technology ramps, we will try to keep it such that we also don't have to invest a lot of money in this market because we have other areas that we are investing in, like consumer electronics.

Farhan Ahmad: The value proposition that we are bringing there is, hey, we have IP that has got value to this market.

Farhan Ahmad: We don't want to comment a lot of capital. We are very...

Farhan Ahmad: And then as this technology ramps up, we will try to keep it such that we also don't have to invest a lot of money in this market because we have other areas that we are investing in, like consumer electronics. So you know, we will, of course, remain flexible. And if other business models make sense, we'll look at them. But right now, the focus would be to use some sort of a licensing royalty model and let our customers make the investment.

Farhan: Limited in how much R&D we are spending.

Farhan Ahmad: So the idea is that we will have a limited amount of investment, we'll take our IP, and then we'll have our customers pay for a lot of the development expenses, and then as this technology damps,

Speaker Change: We will try to keep it such that we also don't have to invest a lot of money in this market because we have other areas that we are investing like consumer electronics.

Raj Talluri: So, you know, we will of course remain flexible. And if other business models make sense, we'll look at them. But right now the focus would be to use some sort of a licensing royalty model and let our customers make the investment. But, as I said, like, you know, like the exact model, we will remain flexible. But, as I said here today, most likely, it seems like, you know, licensing royalties, kind of like the way that we want to quote.

Speaker Change: So, you know, we will, of course, remain flexible and if other business models make sense, we'll look at them. But right now, the focus would be.

Speaker Change: to use some sort of a licensing royalty model and let our customers make the investment. But as I said, like, you know, like the exact model, we will remain flexible, but as I sit here today, most likely it'll, it seems like, you know, licensing royalty is kind of like the way that we wanna go.

Farhan Ahmad: But as I said, like, you know, like the exact Model, we will remain flexible. But as I sit here today, most likely, it seems like, you know, licensing priority is kind of like the way that we want to go. This is one other thing I'll add: the fact that we now have two, you know, EV OEMs doing it clearly validates the value proposition that we're talking about. And that's really exciting. And, of course, we're continuing to find other people who want to do that too.

Raj Talluri: Yeah, this is one other thing I'll add is the fact that we have now two, you know, EV OEMs doing it. Clearly validates the value proposition that we're talking about and that's really exciting, and of course we're continuing to figure out other people who want to do that too. Thank you.

Speaker Change: This is one other thing I'll add is the fact that we have now two, you know, EVOMs doing it clearly validates the value proposition that we're talking about and that's really exciting and of course we're continuing to figure out other people who want to do that too.

Speaker Change: Thank you.

Unknown Executive: Our next question comes from Bill Peterson of J.P. Mark.

William Chapman Peterson: Yeah, hi, thanks for taking the follow-on question. In the press release, you guided to meaningful revenue growth in the second half relative to the first half. Can you speak to the various drivers between, you know, your conventional business acquired from RootJade versus early IoT revenue and maybe any sort of revenue from sampling the customers? And then how should we assume the corresponding margin profile looks with this ramp again, presuming this is mixed dependent? Yeah, so in terms of the

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

William Chapman Peterson: Yeah, hi, thanks for taking the follow on question. In the press release, you guided to a meaningful revenue growth in the second half relative to the first half.

Farhan Ahmad: Revenue growth in the second half relative to the first half, can you speak to the various drivers between, you know, your conventional business acquired from Roojade versus early IoT revenue and maybe any sort of revenue from sampling the customers and then how should we assume the corresponding margin profile looks with this ramp again, presumably this is mixed dependent. Yeah, so in terms of the revenue ramp, like from Q3 to Q4, there's going to be a significant ramp, and it'll be driven by both Roojade and our batteries coming out of Malaysia, and you know whatever we are getting from sampling some of those batteries and some service-related items that are related to the milestones that we have.

William Chapman Peterson: Can you speak to the various drivers between, you know, your conventional business acquired from RootJade?

Speaker Change: versus early IoT revenue and maybe any sort of revenue from sampling the customers. And then, how should we assume the corresponding margin profile looks with this ramp again, presuming this is mixed dependent?

Farhan Ahmad: Yeah, so in terms of the revenue ramp, like from Q3 to Q4, there's going to be a significant ramp. And it will be driven by both RootJet and our batteries coming out of Malaysia and, and you know, whatever we are getting from sampling some of those batteries and some service-related items that are related to the milestones that we have. The growth though, most, I would say more driven by RootJet than the new stuff.

William Chapman Peterson: Yes, so in terms of the revenue ramp, like from Q3 to Q4, there's going to be a significant ramp.

William Chapman Peterson: It will be driven by both RootJet and our batteries coming out of Malaysia.

William Chapman Peterson: and you know whatever we are getting from sampling some of those batteries and some service related items that are related to the milestones that we have.

Farhan Ahmad: The growth though most I would say more driven by Roojade than the new stuff but both will be contributors in terms of the margins that are a lot of moving pieces comes back to, hey, how the depreciation stuff hits in the Q4 but, you know, on the gross margin front probably Q3, Q4, you will have a lower gross margin because you have.

Farhan Ahmad: But both will be contributors. In terms of the margins, that there are a lot of moving pieces that come back to, hey, how the depreciation stuff hits. In Q4, but you know, on the gross margin front, probably Q2 to Q4, you will have a lower gross margin because you have, you know, some of the increased depreciation-related costs, probably hidden. But you know, like, exact; I won't be able to give you a lot of specifics around that because of the technical accounting-related questions that are some of the features to look at.

William Chapman Peterson: The growth, though, I would say more driven by RoutJet than the new stuff, but both will be contributors. In terms of the margins, there are a lot of moving pieces. It comes back to, hey, how the depreciation stuff hits.

William Chapman Peterson: In the Q4, but, you know, on the gross margin front, probably Q2 to Q4, you will have a

Farhan Ahmad: You know some some of the increased depreciation related costs probably hidden, but you know like exact I won't be able to give you a lot of specifics around it because of their technical accounting related questions that are some of just to look at. Thanks for the follow up.

William Chapman Peterson: [inaudible]

Raj Talluri: There are no further questions at this time. With that, I'd like to turn it over to Dr. Raj Taluri for closing remarks. Yeah, thank you all for listening in to the call. Really nice quarter and looking forward to talking to you guys next quarter.

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

Speaker Change #100: There are no further questions at this time. With that, I'd like to turn it over to Dr. Raj Talluri for closing remarks.

Raj Talluri: Yeah, thank you all for listening to the call. It has been a really nice quarter, and I am looking forward to talking to you guys next quarter. Thank you.

Raj Talluri: Yeah, thank you all for listening into the call. Been a really nice quarter and looking forward to talking to you guys next quarter. Thank you.

Thank you.