Q1 2026 Enovix Corp Earnings Call

May 13, 2026

Operator: Thank you for standing by, welcome to the Enovix Corporation First Quarter 2026 Earnings Conference Call. Currently, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's program will be recorded. Now I'd like to introduce your host for today's program, Robert Lahey, Head of Investor Relations. Please go ahead, sir.

Operator: Thank you for standing by, welcome to the Enovix Corporation Q1 2026 Earnings Conference Call. Currently, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. As a reminder, today's program will be recorded. Now I'd like to introduce your host for today's program, Robert Lahey, Head of Investor Relations. Please go ahead, sir.

Speaker #1: Thank you for standing by, and welcome to the Enovix Corporation first quarter 2026 earnings conference call. Currently, all participants are in a listen-only mode.

Speaker #1: After the speaker's presentation, there will be a question-and-answer session. As a reminder, today's program will be recorded. And now, I'd like to introduce your host for today's program, Robert Lahey, Head of Investor Relations.

Speaker #1: Please go ahead, sir.

Speaker #2: Thank you. Hello, everyone. Welcome to Enovix Corporation's first quarter 2026 financial results conference call. With me today are President and Chief Executive Officer Dr. Raj Talluri, and Chief Financial Officer Ryan Benton.

Robert Lahey: Thank you. Hello, everyone, welcome to Enovix Corporation's Q1 2026 financial results conference call. With me today are President and Chief Executive Officer, Dr. Raj Talluri, and Chief Financial Officer, Ryan Benton. Raj and Ryan will provide remarks followed by Q&A. Before we begin, please note that today's conference call contains forward-looking statements that are subject to risks and uncertainties. These statements are based on current expectations and may differ materially from actual future results due to various factors. For a discussion of these risks, please refer to the disclosures in today's press release and our filings with the Securities and Exchange Commission. You can also find these materials on our website at ir.enovix.com. All statements made on this call are as of today, 13 May 2026, we undertake no obligation to update them except as required by law.

Robert Lahey: Thank you. Hello, everyone, Welcome to Enovix Corporation's Q1 2026 Financial Results Conference Call. With me today are President and Chief Executive Officer, Dr. Raj Talluri, and Chief Financial Officer, Ryan Benton. Raj and Ryan will provide remarks followed by Q&A. Before we begin, please note that today's conference call contains forward-looking statements that are subject to risks and uncertainties. These statements are based on current expectations and may differ materially from actual future results due to various factors. For a discussion of these risks, please refer to the disclosures in today's press release and our filings with the Securities and Exchange Commission. You can also find these materials on our website at ir.enovix.com. All statements made on this call are as of today, 13 May 2026, we undertake no obligation to update them except as required by law.

Speaker #2: Raj and Ryan will provide remarks followed by Q&A. Before we begin, please note that today's conference call contains forward-looking statements that are subject to risks and uncertainties.

Speaker #2: These statements are based on current expectations and may differ materially from actual future results due to various factors. For a discussion of these risks, please refer to the disclosures in today's press release and our filings with the Securities and Exchange Commission.

Speaker #2: You can also find these materials on our website at ir.enovix.com. All statements made on this call are as of today, May 13, 2026, and we undertake no obligation to update them except as required by law.

Speaker #2: Additionally, during the call, we may reference non-GAAP financial measures. You can find a reconciliation of these to the most directly comparable GAAP measures in the materials posted on our investor relations website.

Robert Lahey: Additionally, during the call, we may reference non-GAAP financial measures. You can find a reconciliation of these to the most directly comparable GAAP measures in the materials posted on our investor relations website. With that, I'll turn the call over to Raj.

Speaker #2: With that, I'll turn the call over to Raj.

Speaker #3: Good afternoon, everyone, and thank you for joining us. This quarter marked another meaningful step in Enovix's transition towards commercialization and scale. We advanced across the areas we believe are most important for long-term value creation, customer engagement, commercial deployment of our silicon anode batteries, and manufacturing readiness.

Raj Talluri: Good afternoon, everyone, thank you for joining us. This quarter marked another meaningful step in Enovix's transition towards commercialization and scale. We advanced across the areas we believe are most important for long-term value creation, customer engagement, commercial deployment of our silicon anode batteries, and manufacturing readiness. I'm very excited to share that in the smart eyewear market, we commenced commercial production of our AI-1 battery for our lead customers reference platform and have multiple customers in the process of launching smart eyewear products. Initial shipments are underway, with production expected to ramp through H2 of the year. We believe this validates our ability to manufacture our 100% silicon anode architecture at commercial scale. On smartphones, we aligned with Honor on an updated qualification framework designed specifically for silicon anode batteries. This framework, which includes revised specifications and testing protocols, better reflects real-world usage conditions.

Speaker #3: I'm very excited to share that in the smart eyewear market, we commenced commercial production of our A1 battery for our lead customers' reference platform, and we have multiple customers in the process of launching smart eyewear products.

Speaker #3: Initial shipments are underway with production expected to ramp through the second half of the year. We believe this validates our ability to manufacture our 100% silicon anode architecture at commercial scale.

Speaker #3: On smartphones, we aligned with Honor on an updated qualification framework designed specifically for silicon anode batteries. This framework, which includes revised specifications and testing protocols, better reflects real-world usage conditions.

Speaker #3: We are pleased to have also aligned with our second smartphone OEM on the view that they too will need to adapt a similar testing framework in order to get their products to market on a competitive timeline.

Raj Talluri: We are pleased to have also aligned with our second smartphone OEM on the view that they too will need to adapt a similar testing framework in order to get their products to market on a competitive timeline. Beyond these lead customer engagements, we're in active dialogue with several additional leading OEMs regarding silicon anode battery qualification standards, and we are encouraged by the constructive cadence of our discussions with these OEMs as we work towards future qualifications and commercialization programs. Importantly, we believe we are doing the hard work now that will enable our future OEMs to roll out their silicon anode solutions more rapidly. The principal structural mismatch in qualification has now been addressed to align with silicon anode performance while maintaining, and in some respects, increasing qualification rigor.

Speaker #3: Beyond these lead customer engagements, we're in active dialogue with several additional leading OEMs regarding silicon anode battery qualification standards and we're encouraged by the constructive cadence of our discussions with these OEMs as we work towards future qualifications and commercialization programs.

Speaker #3: Importantly, we believe we're doing the hard work now that will enable our future OEMs to roll out their silicon anode solutions more rapidly. The principal structural mismatch in qualification has now been addressed to align with silicon anode performance, while maintaining and, in some respects, increasing qualification rigor.

Speaker #3: Cycle life testing at our lead customer for batteries that we shipped at the beginning of the year is progressing under the updated protocols with the results approaching required thresholds.

Raj Talluri: Cycle life testing at our lead customer for batteries that we shipped at the beginning of the year is progressing under the updated protocols, with the results approaching required thresholds. The deep partnership and technical engagement we are seeing with multiple customers in the smartphone market reinforces our belief in the industry's interest in high-performance silicon anode battery solutions. We're encouraged to see growing demand across our drone, defense, and industrial applications, securing new customer design wins during Q1 2026 in each of these markets, with deployments expected in 2027. Our global pipeline for products manufactured in Korea now exceeds $130 million, with majority driven by rapidly expanding drone applications where demand for high-performance battery solutions continues to outpace the available supply. This creates an opportunity for an additional scaled high-performance supplier.

Speaker #3: The deep partnership and technical engagement we are seeing with multiple customers in the smartphone market reinforces our belief in the industry's interest in high-performance silicon anode battery solutions.

Speaker #3: We're encouraged to see growing demand across our drone defense and industrial applications securing new customer design wins during Q1 2026 in each of these markets with deployments expected in 2027.

Speaker #3: Our global pipeline for products manufactured in Korea now exceeds 130 million dollars with majority driven by rapidly expanding drone applications where demand for high-performance battery solutions continues to outpace the available supply.

Speaker #3: This creates an opportunity for an additional scaled high-performance supplier we believe Enovix is positioned to emerge as that differentiated supplier in this rapidly expanding market.

Raj Talluri: We believe Enovix is positioned to emerge as that differentiated supplier in this rapidly expanding market. We continue to improve manufacturing execution at Fab Two. Yields in most production zones are now nearing or exceeding 90%. Zone 1 dicing, a key throughput driver, is delivering step level yields of approximately 80%, demonstrating continued progress with our laser-based equipment. We recently appointed Steve Bakos as Senior Vice President of Worldwide Sales to support Samira Naraghi, our Chief Business Officer. Steve brings more than 35 years of global semiconductor sales leadership from companies such as Infineon, where he served as the Vice President of Corporate Account Sales for large global accounts, including Apple. This quarter, revenue was $7.6 million, driven by Korean military contractors above the high end of our guidance range and up 49% year over year. Non-GAAP gross margin was 26.3%.

Speaker #3: We continue to improve manufacturing execution at Fab 2. Yields in most production zones are now nearing or exceeding 90%. Zone 1 dicing a key throughput driver is delivering step-level yields of approximately 80% demonstrating continued progress with our laser-based equipment.

Speaker #3: We recently appointed Steve Bacos as Senior Vice President of Worldwide Sales to support Sameera Naragi, our Chief Business Officer. Steve brings more than 35 years of global semiconductor sales leadership from companies such as Infineon where he served as a Vice President of Corporate Account Sales for large global accounts including Apple.

Speaker #3: This quarter, revenue was 7.6 million dollars, driven by Korean military contractors above the high end of our guidance range and up 49% year over year.

Speaker #3: Non-GAAP gross margin was 26.3%. Now I'll walk through each of these areas in more detail starting with manufacturing. On that front, I want to give you an update on our Zone 1 dicing which is our current throughput bottleneck.

Raj Talluri: Now, I'll walk through each of these areas in more detail, starting with manufacturing. On that front, I want to give you an update on our Zone 1 dicing, which is our current throughput bottleneck. Since I joined to improve the throughput of Zone 1, we have been working on a faster, cheaper way to dice our coated rolls. We have been making great progress. Last week, I received a video from our equipment vendor showing this in action. Rather than trying to describe it with another chart, let me just show you the actual process. What you saw was our mechanical dicing system processing silicon anode strips directly from coated rolls. We're implementing a hybrid dicing configuration strategy that combines both laser and mechanical dicing approaches.

Speaker #3: Since I joined to improve the throughput of Zone 1, we have been working on a faster cheaper way to dice our coated rolls. We have been making great progress.

Speaker #3: Last week, I received a video from our equipment vendor showing this in action. Rather than trying to describe it with another chart, let me just show you the actual process.

Speaker #3: What you saw as our mechanical dicing system processing silicon anode strips directly from coated rolls. We're implementing a hybrid dicing configuration strategy that combines both laser and mechanical dicing approaches.

Speaker #3: I continue to be encouraged by the substantial progress our global operations and advanced manufacturing equipment teams are making in this novel area for silicon anode batteries.

Raj Talluri: I continue to be encouraged by the substantial progress our global operations and advanced manufacturing equipment teams are making in this novel area for silicon anode batteries. As we mentioned on the last call, legacy smartphone qualification protocols were originally developed around the graphite-based batteries and relied on a 0.7C discharge requirement. That standard can artificially stress silicon anode cells at discharge rates far above real-world smartphone usage, which typically remains well below 0.2C. The consequence was important. silicon life testing under this framework systematically understated silicon anode batteries' longevity. We've aligned with Honor on a new silicon anode-specific qualification framework. The updated framework prioritizes a version of the 0.2C cycle test that commenced in Q1.

Speaker #3: As we mentioned on the last call, legacy smartphone qualification protocols were originally developed around the graphite-based batteries and relied on a 0.7C discharge requirement.

Speaker #3: That standard can artificially stress silicon anode cells at discharge rates far above real-world smartphone usage which typically remains well below 0.2C. The consequence was important.

Speaker #3: Silicon life testing under this framework systematically understated silicon anode batteries' longevity. We've aligned with Honor on a new silicon anode-specific qualification framework. The updated framework prioritizes aversion of the 0.2C cycle test that commenced in Q1.

Speaker #3: This methodology better reflects real-world usage for silicon anode batteries while enhancing the rigor and visibility into performance. We are seeing broader industry alignment around silicon anode-specific qualification standards our second smartphone OEM has joined our lead customer in removing the 0.7C test from their list of hard requirements as we now progressing towards an updated framework similar to our lead customer.

Raj Talluri: This methodology better reflects real-world usage for silicon anode batteries while enhancing the rigor and visibility into performance. We are seeing broader industry alignment around silicon anode specific qualification standards. Our second smartphone OEM has joined our lead customer in removing the 0.7C test from their list of hard requirements, as is now progressing towards an updated framework similar to our lead customer. Discussions with several additional top OEMs are ongoing. We expect broad adoption of similar silicon anode specific qualification approaches over time. With this framework now established, the plan with Honor is a targeted system level deployment in H2 to confirm in-field performance ahead of the broader commercial launch in 2027. Importantly, we also recently received the battery form factor for their next generation device to support readiness for the next major product launch.

Speaker #3: Discussions with several additional top OEMs are ongoing. We expect broad adoption of similar silicon anode-specific qualification approaches over time. With this framework now established, the plan with Honor is a targeted system-level deployment in the second half of the year to confirm infield performance ahead of the broader commercial launch in 2027.

Speaker #3: Importantly, we also recently received the battery form factor for their next-generation device to support readiness for the next major product launch. Our commercial strategy centers on two complementary technology platforms that address large and in some cases rapidly expanding market opportunities.

Raj Talluri: Our commercial strategy centers on two complementary technology platforms that address large and, in some cases, rapidly expanding market opportunities. AI, short for Artificial Intelligence Class, is our flagship 100% silicon anode platform. It's targeted at smartphones and smart eyewear markets, where volumetric energy density is a key requirement. Smartphones represent the largest battery market opportunity for Enovix. However, smart eyewear is emerging as one of the fastest growing new device categories. We think that the smart eyewear battery market opportunity could exceed $1 billion by the end of the decade. More broadly, the AI platform is applicable to virtually any space constrained device requiring high energy density and long cycle life, including future applications in wearables, computing, industrial handhelds, EVs, and humanoid robotics. Previously, we acquired an established business producing graphite anode-based products.

Speaker #3: AI, short for Artificial Intelligence class, is our flagship 100% silicon anode platform. It's targeted at smartphones and smart eyewear markets where volumetric energy density is a key requirement.

Speaker #3: Smartphones represent the largest battery market opportunity for Enovix. However, smart eyewear is emerging as one of the fastest growing new device categories we think that the smart eyewear battery market opportunity could exceed a billion dollars by the end of the decade.

Speaker #3: More broadly, the AI platform is applicable to virtually any space-constrained device requiring high energy density and long cycle life, including future applications in wearables, computing, industrial handhelds, EVs, and humanoid robotics.

Speaker #3: Previously, we acquired an established business producing graphite anode-based products. These products are in production today generating revenue in defense, drone, and industrial markets through our Korea facility.

Raj Talluri: These products are in production today, generating revenue in defense, drone, and industrial markets through our Korea facility. We've been able to leverage these capabilities in combination with our silicon anode technology know-how to create high performance MX silicon-enhanced platform. Our initial targets markets for MX represent more than $4 billion in opportunity, including approximately $2.4 billion in drones and $1.8 billion in defense technologies beyond drones. These applications prioritize performance and supply chain security with a greater focus on gravimetric energy density. Over the longer term, we believe the MX platform is also well positioned for adjacent markets, including robotics, eVTOL, healthcare devices, transportation, agriculture, and broader industrial applications. The first product Enovix is launching on this platform is MX-1, a ruggedized drone cell design requiring rapid discharge and high gravimetric energy density. I want to highlight something important here.

Speaker #3: We've been able to leverage these capabilities in combination with our silicon anode technology know-how to create high-performance MX silicon enhanced platform. Our initial targets markets for MX represent more than 4 billion in opportunity including approximately 2.4 billion in drones and 1.8 billion in defense technologies beyond drones.

Speaker #3: These applications prioritize performance and supply chain security, with a greater focus on gravimetric energy density. Over the longer term, we believe the MX platform is also well positioned for adjacent markets, including robotics, EV toll, healthcare devices, transportation, agriculture, and broader industrial applications.

Speaker #3: The first product Enovix is launching on this platform is MX1, a ruggedized drone cell design requiring rapid discharge and high gravimetric energy density. I want to highlight something important here.

Speaker #3: These are not separate bets. They are mutually reinforcing platforms sharing technology, supply chain capabilities, and commercial infrastructure. We're increasingly seeing benefits flow in both directions with the AI platform leveraging Korea manufacturing strength and the MX platform benefiting from our silicon expertise and global commercial reach.

Raj Talluri: These are not separate bets. They are mutually reinforcing platforms, sharing technology, supply chain capabilities, and commercial infrastructure. We're increasingly seeing benefits flow in both directions with the AI platform leveraging Korean manufacturing strength and the MX platform benefiting from our silicon expertise and global commercial reach. Alongside qualification progress, our R&D efforts continue to advance the platform. This quarter, we produced the first engineering samples of AI-2 for smart eyewear, delivering greater than 20% higher volumetric energy density compared to AI-1. This represents a meaningful architectural-driven improvement, potentially enabling product categories that require significantly more power within highly constrained form factors. We've achieved this improvement through 2 primary drivers, reducing inactive material to improve packaging efficiency and increasing the cathode voltage. Together, these advances increase energy density within the same footprint and further demonstrate the advantages of our 100% active silicon anode architecture.

Speaker #3: Alongside qualification progress, our R&D efforts continue to advance the platform. This quarter, we produced the first engineering samples of AI2 for smartware delivering greater than 20% higher volumetric energy density compared to AI1.

Speaker #3: This represents a meaningful architectural-driven improvement potentially enabling product categories that require significantly more power within highly constrained form factors. We've achieved this improvement through two primary drivers: reducing inactive material to improve packaging efficiency and increasing the cathode voltage.

Speaker #3: Together, these advances increase energy density within the same footprint and further demonstrate the advantages of our 100% active silicon anode architecture. We believe this represents the first of many future advancements unlocking the full energy potential of our 100% active silicon anode architecture on the future AI product roadmap.

Raj Talluri: We believe this represents the first of many future advancements, unlocking the full energy potential of our 100% active silicon anode architecture on the future AI product roadmap. Display equipped smart eyewear is expected to become a rapidly growing battery market. We believe increasing power requirements create a strong fit for our technology. Smart eyewear also represents an attractive initial commercialization opportunity for our silicon anode platform. Qualification cycles are generally shorter, more flexible, and durability requirements are lower. The market is in the early adoption stage. Customer sampling of AI-2 is planned for later this quarter. We have already received initial sampling orders and engagement commitments from several leading smart eyewear companies. The 20% energy density improvement achieved with AI-2 is important, not only for smart eyewear but also because similar gains for future smartphone batteries could materially extend our technology advantage.

Speaker #3: Display-equipped smart eyewear is expected to become a rapidly growing battery market, and we believe increasing power requirements create a strong fit for our technology.

Speaker #3: Smart eyewear also represents an attractive initial commercialization opportunity for our silicon anode platform. Qualification cycles are generally shorter, more flexible, and durability requirements are lower and the market is in the early adoption stage.

Speaker #3: Customer sampling of AI2 is planned for later this quarter we have already received initial sampling orders and engagement commitments for several leading smart eyewear companies.

Speaker #3: The 20% energy density improvement achieved with AI2 is important not only for smart eyewear but also because similar gains in the future smartphone batteries could materially extend our technology advantage.

Speaker #3: The current AI1 smartphone battery delivers 935 watt-hours per liter and has been independently validated against graphite and silicon-doped alternatives. We believe this positions Enovix as a meaningful competitive advantage in high energy density mobile applications.

Raj Talluri: The current AI-1 smartphone battery delivers 935 Wh/L and has been independently validated against graphite and silicon-doped alternatives. We believe this positions Enovix with a meaningful competitive advantage in high energy density mobile applications. Competing approaches remain largely focused on conventional graphite-based designs with incremental silicon additions. These architectures continue to face swelling constraints that limit long-term performance and energy density improvements. In contrast, our architecture is designed around 100% active silicon anodes, which we believe provides a substantially higher long-term scaling opportunity. Let's talk about our second platform, MX. This week at the Michigan Defense Expo, we formally launched MX1-B01, a drone battery cell delivering energy density of 360 Wh/kg, positioning us competitively within the high-performance drone battery market. We achieved this performance through targeted silicon content enhancements, leveraging an already proven manufacturing platform.

Speaker #3: Competing approaches remain largely focused on conventional graphite-based designs with incremental silicon additions. These architectures continue to face swelling constraints that limit long-term performance and energy density improvements.

Speaker #3: In contrast, our architecture is designed around 100% active silicon anodes, which we believe provides a substantially higher long-term scaling opportunity. Now, let's talk about our second platform, MX.

Speaker #3: This week at the Michigan Defense Expo, we formally launched MX1 B01, a drone battery cell delivering energy density of 360 watt-hours per kilogram, positioning us competitively within the high-performance drone battery market.

Speaker #3: We achieved this performance through targeted silicon content enhancements leveraging an already proven manufacturing platform. MX1 is designed for applications requiring extended flight time, high discharge capability for power-intensive missions, and a secure supply chain.

Raj Talluri: MX1 is designed for applications requiring excellent flight time, high discharge capability for power-intensive missions, and a secure supply chain. We believe the product compares favorably with similar leading high-density solutions currently available in the market and offers a material cycle life advantage. We are manufacturing these cells from our South Korea factory, which has supported defense customers for years, and our commercial focus is on drone manufacturers globally, as well as their packaging partners. Following the Michigan Defense Expo, we plan to showcase MX1 at 11 additional conferences around the US and Europe over the next two quarters as we continue building customer engagement and commercial pipeline activity. This slide shows how we see the MX platform evolving beyond the initial MX1 launch. Demand for high-performance drone battery supply continues to exceed currently available Western capacity, which we believe creates a meaningful opportunity for Enovix.

Speaker #3: We believe the product compares favorably with similar leading high-density solutions currently available in the market and offers a material cycle life advantage. We are manufacturing these cells from our South Korea factory which are supported defense customers for years and our commercial focus is on drone manufacturers globally as well as their packaging partners.

Speaker #3: Following the Michigan Defense Expo, we plan to showcase MX1 at 11 additional conferences around the US and Europe over the next two quarters as we continue building customer engagement and commercial pipeline activity.

Speaker #3: This slide shows how we see the MX platform evolving beyond the initial MX1 launch. Demand for high-performance drone battery supply continues to exceed currently available Western capacity which we believe creates a meaningful opportunity for Enovix.

Speaker #3: These applications prioritize performance reliability and supply chain security supporting differentiated positioning relative to commoditized consumer battery markets. While drones are key near-time focus, we've also established product offerings for subsea, munitions, and industrial applications expanding the MX platform across multiple high-performance end markets.

Raj Talluri: These applications prioritize performance, reliability, and supply chain security, supporting differentiated positioning relative to commoditized consumer battery markets. While drones are a key near-term focus, we've also established product offerings for subsea, munitions, and industrial applications, expanding the MX platform across multiple high performance end markets. Our Korea and Malaysia manufacturing footprint directly addresses defense supply chain requirements, backed by years of production history supporting major contractors and deployed programs. A key structural advantage for Enovix is vertical integration. Because we own our manufacturing operations, we're not sharing economics with third-party contract manufacturers, which we believe supports both competitive pricing and attractive long-term unit economics as volume scales. As product competitiveness becomes increasingly established, the gating factor becomes commercial conversion, which is why we recently appointed Steve Bakos as Senior Vice President of Worldwide Sales.

Speaker #3: Our Korea and Malaysia manufacturing footprint directly addresses defense supply chain requirements backed by years of production history supporting major contractors and deployed programs. A key structural advantage for Enovix is vertical integration because we own our manufacturing operations we're not sharing economics with third-party contract manufacturers which we believe supports both competitive pricing and attractive long-term unit economics as volume scales.

Speaker #3: As product competitiveness becomes increasingly established, the grading factor becomes commercial conversion, which is why we recently appointed Steve Bakos as Senior Vice President of Worldwide Sales.

Speaker #3: He brings more than 35 years of global semiconductor and industrial stage leadership experience, and will help build the commercial infrastructure required to support growth.

Raj Talluri: He brings more than 35 years of global semiconductor and industrial sales leadership experience and will help build the commercial infrastructure required to support growth. Looking ahead, MX2 is targeted for 2027, with the goal of reaching 400 Watt-hours per kilogram. Over time, we intend for MX to evolve into a broader platform strategy spanning multiple product formats and defense and industrial end markets. Now I'll turn it over to Ryan to walk through our financial results. Ryan?

Speaker #3: Looking ahead, MX2 is targeted for 2027, with the goal of reaching 400 watt-hours per kilogram. Over time, we intend for MX to evolve into a broader platform strategy spanning multiple product formats and defense and industrial end markets.

Speaker #3: Now I'll turn it over to Ryan to walk through our financial results. Ryan?

Speaker #2: Thanks, Raj. Our first quarter results reflect disciplined financial execution alongside continued commercialization investment. First quarter revenue was $7.6 million, above the high end of our guidance range and up 49% year over year.

Ryan Benton: Thanks, Raj. Our Q1 results reflect disciplined financial execution alongside continued commercialization investment. Q1 revenue was $7.6 million, above the high end of our guidance range and up 49% year over year. These are largely batteries deployed in active programs with repeat demand. Non-GAAP gross margin was 26.3%, our sixth consecutive quarter of positive gross profit on both a GAAP and non-GAAP basis. Non-GAAP operating expenses were $30.8 million, reflecting continued investment in customer qualification completion, research and product development, and smart eyewear production readiness. Non-GAAP loss from operations was $28.8 million, better than the guidance range of $29 million to $32 million.

Speaker #2: These are largely batteries deployed in active programs with repeat demand. Non-gap gross margin was 26.3%, our sixth consecutive quarter of positive gross profit on both a gap and non-gap basis.

Speaker #2: Non-GAAP operating expenses were $30.8 million, reflecting continued investment in customer qualification, completion research and product development, and smart eyewear production readiness. Non-GAAP loss from operations was $28.8 million.

Speaker #2: Better than the guidance range of $29 to $32 million. Non-GAAP net loss per share was $0.14 at the better end of the guidance range, despite higher interest expense from the 2030 convertible notes issued last year in Q3.

Ryan Benton: Non-GAAP net loss per share was $0.14 at the better end of the guidance range, despite higher interest expense from the 2030 convertible notes issued last year in Q3. Adjusted EBITDA was -$20.3 million, roughly flat year-over-year. We ended the quarter with approximately $582.7 million in cash equivalents, restricted cash, and marketable securities. We believe this provides substantial liquidity to execute on our operating plan, to support commercial scale-up, and to pursue strategic opportunities from a position of strength. Free cash flow was an outflow of $36.3 million, increased from the same period a year ago, primarily driven by timing related items, including the semiannual interest payment on the 2030 convertible notes and working capital movements, primarily higher inventory levels in Korea to support planned shipments.

Speaker #2: Adjusted EBITDA was negative 20.3 million roughly flat year over year. We ended the quarter with approximately $582.7 million in cash, cash equivalents restricted cash, and marketable securities.

Speaker #2: We believe this provides substantial liquidity to execute on our operating plan to support commercial scale-up and to pursue strategic opportunities from a position of strength.

Speaker #2: Free cash flow was an outflow of 36.3 million increased from the same period a year ago primarily driven by timing-related items including the semi-annual interest payment on the 2030 convertible notes and working capital movements primarily higher inventory levels in Korea to support planned shipments.

Speaker #2: Capital expenditure payments were $3.2 million in Q1 below guidance due to the timing delay of certain payments the majority of which we expect to be paid in Q2.

Ryan Benton: Capital expenditure payments were $3.2 million in Q1, below guidance due to the timing delay of certain payments, the majority of which we expect to be paid in Q2. Turning to Q2 2026 guidance. Revenue is expected in the range of $8 to 9 million, reflecting continued growth in defense and industrial shipments and initial smart eyewear revenue as deliveries to our lead customer begin. Non-GAAP loss from operations is expected between $29 and 32 million. Non-GAAP net loss per share between $0.13 and $0.17. Capital expenditure payments are projected in the range of $9 to 13 million, which includes the aforementioned deferred payments as well as initial payments for the investment to support capacity expansion in Korea. Last quarter, we approved a share repurchase authorization to provide additional capital allocation flexibility. We have not made any purchases under that program.

Speaker #2: Turning to Q2 2026 guidance, revenue is expected in the range of $8 to $9 million reflecting continued growth in defense and industrial shipments and initial smart eyewear revenue as deliveries to our lead customer begin.

Speaker #2: Non-gap loss from operations is expected between 29 and 32 million. Non-gap net loss per share between 13 and 17 cents. And capital expenditure payments are projected in the range of $9 to $13 million.

Speaker #2: Which includes the aforementioned deferred payments as well as initial payments for the investment to support capacity expansion in Korea. Last quarter we approved a share repurchase authorization to provide additional capital allocation flexibility.

Speaker #2: We have not made any purchases under that program. Our capital deployment priorities remain unchanged. Qualification completion scaling smart eyewear and defense production capabilities and selectively pursuing strategic opportunities with a high bar on strategic fit and return.

Ryan Benton: Our capital deployment priorities remain unchanged: qualification completion, scaling smart eyewear and defense production capabilities, and selectively pursuing strategic opportunities with a high bar on strategic fit and return. With that, I think we're ready to take questions. Operator?

Speaker #2: And with that, I think we're ready to take questions. Operator?

Speaker #3: 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 is, previously management has discussed multiple pathways to achieve final smartphone qualification targets.

Operator: We will now begin the Q&A session. Please note that this call is being recorded. Before we go to live questions, we are going to read the two most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is: previously, management has discussed multiple pathways to achieve final smartphone qualification targets. Could you elaborate on which of these pathways currently appears most promising?

Speaker #3: Could you elaborate on which of these pathways currently appears most promising?

Speaker #4: Yeah. Thank you for the question, and thank you all for listening. Of the pathways we discussed, as I mentioned in the prepared remarks, we have not aligned with Honor.

Raj Talluri: Thank you for the question, thank you all for listening. Of the pathways we discussed, as I mentioned in the prepared remarks, we've now aligned with Honor, at a combination of, you know, of different pathways that we could use. The 0.7C legacy test requirement, that's been mainly for based on graphite batteries. We've aligned with our customers that that is not a must-have requirement, it's been removed as a gating item. We're now working on a slightly different 0.2C test, which more better reflects the real-world usage of the smartphone, that's been prioritized now. Not just with Honor, but many of our other lead customer also agreed to the same thing.

Speaker #4: At a combination of different pathways that we could use, the 0.7C legacy test requirement that's been mainly for based on graphite batteries we've aligned with our customers that that is not a must-have requirement and it's been removed as a gating item.

Speaker #4: We're now working on a slightly different 0.2C test which more better reflects the real-world usage of the smartphone. And that's been prioritized now. And not just with Honor, but many of our other lead customers also agreed to the same thing.

Raj Talluri: In general, I feel like the smartphone market now, people are realizing that as silicon batteries become more and more popular, they should really change the requirements that are in the market that have been used mostly for graphite. It's very nice, really great result. I'm really pleased with my team being able to convince them. Now the 0.2C test is more than halfway done at our customer, and it's continuing to go, and we're tracking it.

Speaker #4: In general, I feel like the smartphone market now people are realizing that as silicon batteries become more and more popular, we should really they should really change the requirements that are in the market that have been used mostly for graphite.

Speaker #4: So it's really nice, really great result. I'm really pleased with my team being able to convince them. Now the 0.2C test is more than halfway done at our customer.

Speaker #4: And it's continuing to go, and we're tracking it.

Operator: The second question is: for your AI-2 platform, when will the samples be submitted to customers so that testing can begin?

Speaker #3: The second question is for your AI2 platform. When will the samples be submitted to customers so that testing can begin?

Speaker #4: Yeah. As I mentioned in the remarks, we have engineering samples now inside and they look really good in terms of the 20% energy density increase that from AI1.

Raj Talluri: Yeah. As I mentioned in the remarks, that we have engineering samples now inside, and they look really good in terms of the 20% energy density increase that from AI-1. Great achievement by the R&D team. You know, harnessing the full potential of silicon. These will continue to get better over time. These samples, we expect to sample this quarter to our customers. Quite a few people have actually expressed interest in that, and we got a few sample purchase orders now.

Speaker #4: Great achievement by the R&D team. Harnessing the full potential of silicon. And these will continue to get better over time. But these samples we expect to sample this quarter to our customers.

Speaker #4: And quite a few people have actually expressed interest in that and we got a few sample purchase orders now.

Speaker #3: Thank you. We will now go to the Q. If you would like to ask a question, please use the raise hand feature on your screen.

Operator: Thank you. 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 via phone, please use star nine to raise your hand and star six to unmute. Questions will be answered in the order they are received. Please ask one question and one follow-up question at most. We will now pause for a moment to assemble the queue. Our first question will come from Jed Dorsheimer with William Blair. Your line is open. Please ask your question.

Speaker #3: If you have dialed in via phone, please use star 9 to raise your hand and star 6 to unmute. Questions will be answered in the order they are received.

Speaker #3: Please ask one question and one follow-up question at most. We will now pause for a moment to assemble the Q. Our first question will come from Mark Shooter with William Blair.

Speaker #3: Your line is open. Please ask your question.

Speaker #2: Thank you. Hi guys. Congrats on the progress. My first question is just focusing in on Honor a bit. I saw in the press release that you have some field testing looking at the second half, right, is when you're targeting.

Jed Dorsheimer: Thank you. Hi, guys. Congrats on the progress. My first question is just focusing in on Honor a bit. I saw in the press release that you have some field testing looking at about H2, right, is when you're targeting. I'm wondering if you could give us a updated understanding of what unit volumes may be for that field testing with Honor. If successful, do you have a better view on what a ramp would look like in 2027?

Mark Shooter: Thank you. Hi, guys. Congrats on the progress. My first question is just focusing in on Honor a bit. I saw in the press release that you have some field testing looking at about H2, right, is when you're targeting. I'm wondering if you could give us a updated understanding of what unit volumes may be for that field testing with Honor. If successful, do you have a better view on what a ramp would look like in 2027?

Speaker #2: So I'm wondering if you could give us an updated understanding of what unit volumes may be for that field testing with Honor. And if successful, do you have a better view on what a ramp would look like in 2027?

Raj Talluri: Yeah. Again, like, as I mentioned, now we have a, you know, test methodology to align with Honor, we're in the middle of doing that. The next big step is to actually put the battery inside an existing phone for which, you know, we made this custom-sized cell. It's hard to predict the number of units. It will be small because it'll be initial test just to make sure that everything is smooth and a limited launch maybe. The real volume will be, you know, in 2027. More importantly, we got the size for that particular battery that's gonna be launched in 2027, and we're now working on how to make that battery after the field testing is complete.

Speaker #4: Yeah. So again, as I mentioned, now we have a test methodology that aligned with Honor. So we're in the middle of doing that. And the next big step is to actually put the battery inside an existing phone for which we made this custom-sized cell.

Speaker #4: It's hard to predict the number of units. And they'll be small because it'll be initial test just to make sure that everything is smooth and limited launch maybe.

Speaker #4: But the real volume will be in 2027. But we more importantly, we got the size for that particular battery that's going to be launched in 2027.

Speaker #4: And we're now working on how to make that battery after the feed testing is complete.

Speaker #2: Okay. Great. Thanks for the color. Switching gears into drones, which is very interesting opportunity. And congrats on the silicon carbon composite, that mixed graphite cell.

Jed Dorsheimer: Okay, great. Thanks for the color. Switching gears into drones, which is a very interesting opportunity. Congrats on the silicon carbon composite, you know, that mixed graphite cell. At 360 Wh/kg, that's gonna put you know, well in the running against the current peer set. I'm wondering if you could speak to maybe some of the customers that you're engaged with in sampling. Say you win all that business today, everyone you're engaged with, do you have an idea of what those qual times look like and your current unit volume and revenue capacity?

Mark Shooter: Okay, great. Thanks for the color. Switching gears into drones, which is a very interesting opportunity. Congrats on the silicon carbon composite, you know, that mixed graphite cell. At 360 Wh/kg, that's gonna put you know, well in the running against the current peer set. I'm wondering if you could speak to maybe some of the customers that you're engaged with in sampling. Say you win all that business today, everyone you're engaged with, do you have an idea of what those qual times look like and your current unit volume and revenue capacity?

Speaker #2: At 360 watts per kilogram, that's going to put you well in the running against the current pure set. So I'm wondering if you could speak to maybe some of the customers that you're engaged with in sampling and say you win all that business today.

Speaker #2: Everyone you're engaged with. Do you have an idea of what those call times look like and your current unit volume and revenue capacity?

Speaker #4: Yeah. Firstly, thank you for that comment on the drone cell. We are also super proud of the engineering team that came up with it in a very short order.

Raj Talluri: Firstly, thank you for that comment on the drone cell. We are also super proud of the engineering team that came up with it in a very short order, particularly because we have a well-established manufacturing facility that beyond we were able to quickly make that. You know, the product actually is extremely competitive with what's in the market today and is made totally within our factories. It's not contract manufactured. Actually, I have the phone battery here with me. You know, we have a bunch of these cells now. There is a lot of interest, and I just got a call from our sales team who's at the Detroit, you know, drone show right now about the tremendous interest they're seeing.

Speaker #4: Particularly because we have a well-established manufacturing facility that beyond we were able to quickly make that. The product actually is extremely competitive. With what's in the market today.

Speaker #4: And is made totally within our factories. It's not contract manufactured. Actually, I have the fact battery phone battery here with me. We have a bunch of these cells now.

Speaker #4: So we there's a lot of interest. And I just got a call from our sales team who's at the Detroit drone show right now about the tremendous interest they're seeing.

Raj Talluri: Because this is also a NDAA compliant cell, which is actually, you know, big deal for many of our customers. The go-to-market of this works this way. Typically, there are people who take these and put them in packs and put the BMS around it and the system around it, and that goes into multiple drone makers. It's hard to call the volumes right now, but the market is so fast and growing really fast that we think that the cycle times, the qualification times will be, you know, shorter than things like smartphones because there's such a demand. Also a cycle life doesn't have to be that long in these. Our cell goes to 300 cycles, even shorter cycles are okay in some of these markets.

Speaker #4: Because this is also an NDA compliant cell, which is actually a big deal for many of our customers. The go-to-market of this works this way.

Speaker #4: Typically, there are people who take this and put them in packs and put the BMS around it. And the system around it. And that goes into multiple drone makers.

Speaker #4: So it's hard to call the volumes right now, but the market is so fast and growing really fast that we think that the cycle times, the qualification times will be shorter than things like smartphones because they're such a demand.

Speaker #4: And also a cycle life doesn't have to be that long in these. Our cell goes to 300 cycles. But even shorter cycles are okay in some of these markets.

Speaker #2: And maybe I'll chime in and Mark, you asked about volumes. Again, we've talked about in the CapEx forecast and prepared marks. We're already spending dollars to add equipment to one of the existing buildings in the non-SIM facility.

Ryan Benton: Maybe I'll chime in. You know, Jed, you asked about volumes. You know, again, we've talked about in the CapEx forecast and prepared remarks, we're already spending dollars to add equipment to one of the existing buildings in an on-site facility.

Speaker #2: And one of the great strengths, advantages that we have sitting on our balance sheet is we have multiple empty buildings and that facility as well.

Ryan Benton: You know, one of the great strength advantages that we have sitting on our balance sheet is we have multiple empty buildings in that facility as well. We have, you know, numerous stages of additional expansion capacity there. We're just gonna do that in a methodical way as demand presents itself.

Speaker #2: So we have numerous stages of additional expansion capacity there. And we're just going to do that in a methodical way as demand presents itself.

Speaker #5: That's great. Thanks for the color, guys.

Jed Dorsheimer: That's great. Thanks for the color, guys.

Mark Shooter: That's great. Thanks for the color, guys.

Speaker #3: Your next question will come from Colin Rush with Oppenheimer. Your line is open. Please ask your question.

Operator: Your next question will come from Colin Rusch with Oppenheimer. Your line is open. Please ask your question.

Speaker #6: Thanks so much, guys. Could you talk a little bit about the mix of silicon material that you have in the new drone batteries? And the pathway from the 360 to 400, how much of that is being driven by increased thickness or different form factor or increased concentration of silicon in the anode?

Colin Rusch: Thanks so much, guys. You know, could you talk a little bit about the mix of silicon material that you have in the new drone batteries, and the pathway from the 360 to 400, how much of that is being driven by increased thickness or, you know, different form factor or increased concentration of silicon in the anode?

Speaker #4: Yeah. Great question, Colin. So when we did this one, the way we did it was to there's an existing requirement for a cell that's in the market today that many of the customers wanted us to provide something that is with the fully NDA compliant, made within our factories.

Raj Talluri: Great question, Colin. When we did this one, the way we did it, there's an existing requirement for a cell that's in the market today that many of the customers wanted us to provide something that is with the fully NDA compliant, you know, made within our factories. We made that one, and we quickly got it to that performance. Actually, it performs really well. The cycle life is really good, and the capacity holds. We have about 60% SiC in that cell, but we now believe that we can get that to much higher percentage because, you know, in this market, some amount of swelling is okay because it's inside a drone, and you could put pressure and put it in there.

Speaker #4: So we made that one and we quickly got it to that performance. Actually, it performs really well. The cycle life is really good and the capacity holds.

Speaker #4: We have about 60% SIC in that cell. But we now believe that we can get that to much higher percentage because in this market, some amount of swelling is okay because it's inside a drone and you could put pressure and put it in there.

Speaker #4: It's not a space constraint situation like a smartphone. And also, the discharge rate, the pulse discharge, and the number of cycles are variables we can keep tuning.

Raj Talluri: It's not a space-constrained situation like a smartphone. Also the discharge rate, and the pulse discharge and the number of cycles are variables we can keep tuning. You know, we mentioned, you know, 400 Watt-hours per liter as something that we could produce. I believe we can go much higher than that by just making the right trade-offs between cycle life and discharge rate and the amount of swelling we allow. You know, I think the good news is we've been working on silicon for a long time, so we know exactly what electrolytes work well with silicon. We're working with graphite for a long time in Nonsan. We have that know-how, and we have a factory that's been supplying for defense for a long time.

Speaker #4: We mentioned 400 watt-hours, but later as something that we could produce. I believe we can go much higher than that by just making the right trade-offs between cycle life and discharge rate, and the amount of swelling we will allow.

Speaker #4: So I think the good news is we've been working on silicon for a long time. So we know exactly what electrolytes work well with silicon.

Speaker #4: We've been working with graphite for a long time in non-sun conditions. We have that know-how. And we have a factory that's been supplying for different needs for a long time.

Speaker #4: So our quality of the products that we actually supply to defense is very, very high bar. And that factory is actually qualified for that.

Raj Talluri: Our quality of the product that we actually supply to defense is very high bar, and that factory is actually qualified for that. That's why I think that, you know, you'll see a pretty competitive roadmap from us for this market very quickly.

Speaker #4: So that's why I think that you will see a pretty competitive roadmap from us for this market very quickly.

Speaker #6: Great. And then looking at the laser cutting, I just want to understand kind of the cadence of learning cycle on yield improvement and how we should think about kind of the engineering work that you're doing and how quickly you can implement that to start getting a little bit better output on the overall facility.

Colin Rusch: Great. Then, you know, looking at the laser cutting, I just want to understand kind of the cadence of learning cycle on yield improvement and how we should think about kind of the engineering work that you're doing and how quickly you can implement that to start getting a little bit better, you know, output on the overall facility.

Speaker #4: Yeah, so as I mentioned, from last quarter to this quarter, we've improved our yield across multiple zones. We're well into the 90% range now in most of the zones.

Raj Talluri: Yeah. As I mentioned, from last quarter to this quarter, we've improved our yield across multiple zones, you know, well into the 90% range now in most of the zones. The laser, like, is kind of in the 80% range, but that's improved quite a bit from last time. As you guys saw in the video, we've been working on this for a while, and today I thought was a good time to show you a combination of laser and mechanical dicing that actually cuts much, much, much faster and much cleaner. When you laser dice, there are also some challenges that we've been working on for a while, which is, you know, how to get to the yield and the throughput and so on.

Speaker #4: The laser is kind of in the 80% range, but that's improved quite a bit from last time. But as you guys saw in the video, we've been working on this for a while and today I thought was a good time to show you a combination of laser and mechanical gracing that actually cuts cleaner.

Speaker #4: When you laser dies, there are also we've been working on for a while, which is how to get to the yield and the throughput and so on.

Speaker #4: It's an expensive way to do things. So we have always, right when I started, we've been working on a different way to actually do this.

Raj Talluri: It's an expensive way to do things, so we've always, you know, right when I started, we've been working on a different way to actually do this, and you saw the mechanical dicer now. We have enough lasers, and we have enough throughput to, you know, meet the demand for this year, and we will get the mechanical dicer, our plan is to get it online this year. For the next year's demand, we can use the mechanical dicer with some combination of laser finishing it up. Really exciting results. I hope you guys saw that video also, the throughput that we can produce with that.

Speaker #4: And you saw the mechanical dies from now. So, we have enough lasers and we have enough throughput to meet the demand for this year.

Speaker #4: And we will get the mechanical dicer our plan is to get it online this year. So for the next year's demand, we can use the mechanical dicer with some combination of laser finishing it up.

Speaker #4: So really exciting results. So I hope you guys saw that video also, the throughput that we can produce with that.

Speaker #6: Okay. Thanks so much, guys.

Colin Rusch: Okay. Thanks so much, guys.

Speaker #2: Thanks, Colin.

Robert Lahey: Thanks, Colin.

Ryan Benton: Thanks, Colin.

Operator: Your next question will come from Jeffrey Osborne with TD Cowen. Please unmute your audio and ask your question.

Speaker #3: next question will come from Jeff Osborne with TD Cowan. Please unmute your audio and ask your question.

Speaker #7: Yeah, thank you. Maybe just a quick two questions, but one quick follow-up on Colin's. Can you get to 90% yields without that machinery intact, or do you need to add the lasers to get there?

Jeffrey Osborne: Yeah. Thank you. Maybe just a quick, 2 questions, but one quick follow-up on Colin's. Can you get to 90% yields without that machinery intact, or do you need to add the lasers to get there, and that's more of like a 2027 event, getting to 90%?

Speaker #7: And that's more of, like, a 2027 event, getting to 90%.

Speaker #2: Maybe I'll take the first. Yeah. I think we can we're capable of getting to 90% yield, but again, it goes hand in hand with throughput.

Ryan Benton: Maybe I'll take the first hit.

Raj Talluri: Yeah, please. Yeah.

Ryan Benton: Yeah, I think we're capable of getting to 90% yield. Again, it goes hand in hand with throughput. I mean, again, you saw the video. Really, the mechanical dicer is just able to operate so much faster. Ultimately, all this, you know, I'm the finance guy. Ultimately, it's about cost. We just think it's the most economical way eventually in some of the sub-process steps to operate.

Speaker #2: I mean, again, you saw the video. Really, the mechanical dicer is just able to operate so much faster. And so ultimately, all this I'm the finance guy.

Speaker #2: Ultimately, it's about cost. We just think it's the most economical way eventually in some of the sub-process steps to operate.

Speaker #6: Perfect. Thanks for.

Jeffrey Osborne: Perfect. Thanks so much.

Raj Talluri: Yeah. Cost of the machines, right? These are much-

Speaker #4: And parts of the machines, right? These are much—it's a less expensive way to get throughput.

Ryan Benton: Yeah.

Raj Talluri: It's a less expensive way to get throughput.

Speaker #2: Yeah.

Ryan Benton: Yeah.

Speaker #6: Perfect. And my two questions is one, Ryan, I was just wondering if you can update us on the M&A pipeline. I think you've been out there searching for a couple of quarters now.

Jeffrey Osborne: Perfect. My two questions is, one, Ryan, I was just wondering if you can update us on the M&A pipeline. I think you've been out there searching for a couple quarters now. Just Raj, a clarification. You mentioned providing packs to Honor to put in a phone, small quantities in H2 of the year, but then you mentioned something about getting a second design. It was unclear, is there a second SKU that they've given you, or is the SKU that they gave you what they intend to produce in 2027? I'm just trying to get a sense of your relationship is deepening with them, and they're giving you a glimpse of what they intend to commercialize after the first product launch.

Speaker #6: And then just Raj, a clarification. You mentioned providing packs to honor to put in a phone, small quantities in the second half of the year, but then you mentioned something about getting a second design.

Speaker #6: It was unclear. Is there a second SKU that they've given you, or is the SKU that they gave you what they intend to produce in 2027?

Speaker #6: I'm just trying to get a sense if your relationship is deepening with them, and they're giving you a glimpse of what they intend to commercialize after the first product launch.

Raj Talluri: It's exactly the latter. We actually have SKU that'll launch in 2027, so which is actually a fairly large deal and shows the relationships we have with them.

Speaker #4: It's exactly the latter. So we actually have SKU that launched in 2027, which is actually a fairly large deal and shows the relationships we have with them.

Raj Talluri: It's exactly the latter. We actually have SKU that'll launch in 2027, so which is actually a fairly large deal and shows the relationships we have with them.

Speaker #2: Is it in terms of the packs to honor, the quantities, any comments on that?

Jeffrey Osborne: In terms of the packs to Honor, the quantities, any comments on that?

Speaker #4: Yeah, it'll be small volume. Again, it'll be just a test to make sure that the system-level stuff works okay, and we get a small initial launch. I think that's fine with us, just to make sure everything is good before we get into high volume.

Raj Talluri: Yeah. It'll be small volume. Again, it'll be just to test and make sure that the system level stuff works okay, and we get a small initial launch. I think that's, you know, again, that's fine with us to just to make sure everything is good before we get into high volume.

Speaker #2: So is that like thousands of friends and families and stuff?

Jeffrey Osborne: Is that the, like, thousands, friends and family type stuff?

Raj Talluri: Yeah, yeah. That's probably what you should think of.

Speaker #4: Yeah. That's probably what it that's probably what you should think of.

Ryan Benton: Then on the first question in terms of M&A pipeline, I'm really pleased with the pipeline that we have multiple opportunities that we're pursuing. Again, as we've said and repeated time and time again, we're gonna be disciplined. It has to meet a strategic fit, and we're gonna be disciplined on price. It's fair to say that we've looked at quite a few opportunities that we just didn't like the price tag and we've moved on from. I think we're excited about some of the opportunities we're pursuing, but again, there are, we're not gonna waiver. We think we're gonna be disciplined stewards of the capital and make sure it makes sense and it's something that Raj really sees the strategic fit and benefit.

Speaker #2: And then on the first question in terms of M&A pipeline, so I'm really pleased with the pipeline that we have. Multiple opportunities that we're pursuing.

Speaker #2: Again, as we said, and repeated time and time again, we're going to be disciplined. So it has to meet a strategic fit. And we're going to be disciplined on price.

Speaker #2: So it's fair to say that we've looked at quite a few opportunities that we just didn't like the price tag. And we've moved on from that we're I think we're excited about some of the opportunities we're pursuing.

Speaker #2: But again, our we're not going to waver. We think we're going to be disciplined stewards of the capital and make sure it makes sense and it's something that Raj really sees the strategic fit and benefit.

Speaker #2: And it's something that I can be here on an earnings call and be proud of the price we paid for it.

Ryan Benton: It's something that I can, you know, be here on an earnings call and be proud of the price we paid for it.

Speaker #6: Perfect. Thank you.

Jeffrey Osborne: Perfect. Thank you.

Speaker #3: Your next question will come from Riplu, Bhattacharya with Bank of America. Your line is open. Please ask your question.

Operator: Your next question will come from Ruplu Bhattacharya with Bank of America. Your line is open. Please ask your question.

Ruplu Bhattacharya: Hi. Thanks for taking my questions. Raj, I wanted to ask the first question on smart eyewear batteries. I think the press release says that you expect 50,000 units in 2026. How should we think that that scales as we head into next year, and how should we think about the revenue progression from smart eyewear over the next few years?

Speaker #6: Hi. Thanks for taking my questions. Raj, I wanted to ask the first question on smart eyewear batteries. I think the press release says that you expect 50,000 units in 2026.

Speaker #6: How should we think that that scales as we head into next year? And how should we think about the revenue progression from smart eyewear over the next few years?

Speaker #4: Yeah. So the 50,000 is this year. Firstly, I wanted to say that with the way where the yields are and the throughput is and the way it's working, we're now able to manufacture this cell in our lines.

Raj Talluri: Yeah. The 50,000 is, you know, this year. Firstly, I wanted to say that, you know, with the way where the yields are and the throughput is and the way it's working, we're now able to manufacture this cell in our lines. The customer is delivered to the customer, they're testing them, it looks good. Firstly, that's I think a great result. You know, as I mentioned, it is a huge market growing rapidly. It should be in the millions next year. It's hard to tell exactly how much. We have sampled to many different customers now because what we have is a battery that really makes the product, you know. Because the energy density, you know. Right now, as you know, many glasses out there, they don't last a whole day.

Speaker #4: And the customer delivered to the customer—they're testing them. It looks good. So, firstly, that's, I think, a great result. As I mentioned, this is a huge market growing rapidly.

Speaker #4: It should be in the millions next year. It's hard to tell exactly how much. We have sampled to many different customers now because what we have is a battery that really makes the product because the energy density right now, as you know, many glasses out there, they don't last the whole day.

Speaker #4: So this one actually continues to improve on that, and now that's why we decided to launch the next product using our AI2 in that space first.

Raj Talluri: This one actually continues to improve on that. Now that's why we decided to launch the next product using our AI-2 in that space first, you know. Because the market was really asking for even more because they're, it just, it's just very difficult to have the product last all day without that. We do think that'll the first product will launch this year. The next product, you know, AI-2, we're gonna sample this summer, and that'll go into production next year. We expect it to be in the millions next year.

Speaker #4: Because the market was really asking for even more because their it's just very difficult to have the product last all day without that. So we do think that that'll the first product we'll launch this year and next product AI2, we're going to sample this summer and that'll go into production next year.

Speaker #4: So we expect it to be in the millions next year.

Speaker #6: Okay. Thanks for the details there. For a follow-up, can I ask, Ryan, as you ramp the smartphones later this year and next year, the smartphone batteries, how does that impact gross margin?

Ruplu Bhattacharya: Okay. Thanks for the details there. For a follow-up, can I ask Ryan, as you ramp the smartphones later this year and next year, the smartphone batteries, how does that impact gross margin? I think some OpEx might move into COGS. Can you just help us understand how we should think about gross margin progression as smartphones become a bigger part of the mix?

Speaker #6: I think some OPEX might move into COGS. So can you just help us understand how we should think about gross margin progression as smartphones become a bigger part of the mix?

Speaker #2: Yeah, certainly. So certainly, as we ramp the Smart Hour and the smartphones, you're going to see some change, and you will see some of the costs right now that we have in operating expense will move up above the line into the cost of goods sold line.

Ryan Benton: Yeah, certainly. Certainly as we ramp the smart eyewear and the smartphones, you're gonna see some change in, and you will see some of the costs right now that we have an operating expense will move up above the line into the cost of goods sold line. Really whenever you think about our cost structure, the majority of our cost of sales is materials. It's really about continuing to drive the bill of materials cost down and those will be materials that we purchase for those orders as we prepare to ship them. That's the vast majority of our COGS.

Speaker #2: But really, whenever you think about our cost structure, the majority of our cost of sales is materials. So it's really about continuing to drive the bill of materials cost down.

Speaker #2: And those will be materials that we purchase for those orders as we prepare to ship them. So that's the vast majority of our COGS.

Speaker #2: So when you talk about direct labor, variable overhead, and even a fixed overhead to some extent, although we have some material costs as it relates to the cost of the factory, as we get to a decent amount of volume, it ends up being a very small percentage of our costs.

Ryan Benton: When you talk about direct labor, variable overhead, and even fixed overhead to some extent, although we have some, you know, material costs as it relates to the cost of the factory, as we get to a decent amount of volume, it ends up being a very small percentage of our costs.

Speaker #6: Okay. Thanks for all the details. Appreciate it.

Ruplu Bhattacharya: Okay. Thanks for all the details. Appreciate it.

Speaker #2: Yep.

Ryan Benton: Yep.

Speaker #3: Your next question will come from Derek Soderbergh with Cantor Fitzgerald. Your line is open. Please ask your question.

Operator: Your next question will come from Derek Soderberg with Cantor Fitzgerald. Your line is open. Please ask your question.

Speaker #6: Yeah, hey guys, thanks for taking my questions. I was wondering if there's any way you can segment that $130 million Korea pipeline—drones and defense opportunities—how much of that is sort of legacy, Route Jade, and how much of that is drones?

Derek Soderberg: Hey, guys. Thanks for taking my questions. I was wondering if there's any way you can segment that $130 million Korea pipeline, you know, drones and defense opportunities. How much of that is sort of legacy Routejade and how much of that is drones?

Speaker #4: Well, firstly, this is future-looking revenue, not right. So it is actually a lot of it is new designs that we are working with customers to get.

Raj Talluri: Firstly, this is future-looking revenue. It is actually a lot of it is new designs that we are working with customers to get. In some sense, some of it is continuation of the defense business that Routejade had, but majority of it is actually new stuff that we are winning. Drones is like, you know, over 60% of that.

Speaker #4: And so in some sense, some of it is continuation of the defense business that the route jade had. But the majority of it is actually new stuff that we are winning.

Speaker #4: And drones is like over 60% of that.

Speaker #6: Got it, that's helpful. And then, just curious on the NDA compliance piece—I was wondering how unique that is. I know there are a couple others that have that, but not too many at this point.

Derek Soderberg: Got it. That's helpful. Just curious on the NDAA compliance piece. I was wondering how unique that is. I know there's a couple others that have that, but not too many at this point. You know, might it be difficult for others to sort of achieve that over the next couple years? You know, within drones, what kind of drones are you getting interest in? You know, there's a wide variety of, you know, sea drones, air drones, heavy and light.

Speaker #6: Might it be difficult for others to sort of achieve that over the next couple of years? And then within drones, what kind of drones are you getting interested in?

Speaker #6: There's a wide variety of sea drones, air drones, heavy and light. Where do you guys think you can build a nice business in drones?

Raj Talluri: Yeah.

Derek Soderberg: Where do you guys think you can build, you know, a nice business in drones?

Speaker #4: Yeah, so NDA compliance is actually not that easy to achieve because there are multiple elements to that—on the way, the cost of the things that are sourced, what percentage of them have to be from these FIOC and non-FIOC countries.

Raj Talluri: Yeah. NDAA compliance is actually not that easy to achieve because there's multiple elements to that on the way the cost of the things that are sourced, what percentage of them have to be from this FEOC and non-FEOC countries, and then where the cells are actually manufactured. For us, you know, we manufacture them in Nonsan, South Korea, which is, you know, non-FEOC country, which is very, very good there. Most of the material we have in there, majority of it is actually not sourced there either from a FEOC country either. In that sense, it's a big advantage for us in that we own our factories and we have the material.

Speaker #4: And then where the cells are actually manufactured. So for us, we manufacture them in non-South Korea, which is non-FIOC countries, so which is very good there.

Speaker #4: And then most of the material we have in there, the majority of it is actually not sourced there either—from a FIOC country either. So, in that sense, it’s a big advantage for us.

Speaker #4: And that we own our factories, and we have the material. In terms of drones, we are seeing it in training, public surveillance, inspection, public safety—multiple markets like that.

Raj Talluri: You know, in terms of drones, we are seeing it in like training, you know, public surveillance, inspection, public safety, multiple markets like that. What varies between these drones is, you know, kind of like a discharge rate, then it also depends upon how many cycles. The first product we made is, as I showed, you know, 300 cycles, high discharge rate, this one that I talked about, but we have the technology and we have the know-how, and we have the factory now to make different products optimized for slightly different, you know, lesser cycles, but more energy density and so on. We will have a roadmap of products addressing various parts of the market, you know, as we start building out that roadmap.

Speaker #4: What varies between these drones is kind of like a discharge rate. Then it also depends upon how many cycles. The first product we made is, as I showed, 300 cycles, high discharge rate.

Speaker #4: This is the one that I talked about. But we have the technology, and we have the know-how, and we have the factory now to make different products optimized for slightly different, lesser cycles, but more energy density, and so on.

Speaker #4: So we'll have a roadmap of products addressing various parts of the market as we start building out that roadmap. It's an opportunity that really grew very fast and came quickly.

Raj Talluri: It's an opportunity that really grew very fast and came quickly, you know.

Ryan Benton: I'll chime in. I apologize if you already men-

Speaker #6: And I'll jump in. Apologies if you already mentioned it, but obviously, we've got a lot of long history of subsea drones. And so it's like that out of Korea.

Ryan Benton: I'll chime in. I apologize if you already men-

Raj Talluri: Yeah

Ryan Benton: mentioned it, but obviously we've got a lot of, a long history of subsea drones.

Raj Talluri: That's right.

Ryan Benton: They came out of Korea, and so that's something that I think will continue to be a strength for us as well.

Speaker #6: And so that's something that I think will continue to be a strength for us as well. Perfect. Thanks, guys.

Derek Soderberg: Perfect. Thanks, guys.

Speaker #3: Your next question will come from Alex Valero with Loop Capital. Please unmute your audio and ask your question.

Operator: Your next question will come from Ananda Baruah with Loop Capital.

Speaker #2: Yeah. Hey, guys. Thank you for taking my question. Yeah. Just on smartphones, what impact is memory cost inflation having on your lower-end phone volumes?

Ananda Baruah: Yeah. Hey, guys. Thank you for taking my question. Yeah, just on smartphones, what impact is memory cost inflation having on your lower-end phone volumes?

Alek Valero: Yeah. Hey, guys. Thank you for taking my question. Yeah, just on smartphones, what impact is memory cost inflation having on your lower-end phone volumes?

Raj Talluri: We're not shipping much volume right now, right? I think not so much impact right now. We do see that the number of units shipped this year will probably be much lesser in terms of the total number of smartphone units shipped. Hopefully that'll normalize over the next couple of years. By then we get into higher volume, hopefully it'll be less of an impact. Right now, not too much impact.

Speaker #4: We're not shipping much volume right now, right? So I think not so much impact right now. But we do see that the number of units shipped this year will probably be much lesser in terms of the total number of smartphone units shipped.

Speaker #4: Hopefully, that'll normalize over the next couple of years. By the time we get into higher volume, it may be less. Hopefully, it'll be less of an impact.

Speaker #4: But right now, not too much impact.

Speaker #2: Okay, thank you for clarifying that. And another clarification question: did you say that the 0.7C testing requirement was removed, or you're hoping to remove it?

Ananda Baruah: Okay. Thank you for clarifying that.

Alek Valero: Okay. Thank you for clarifying that.

Raj Talluri: Yes.

Ananda Baruah: Another clarification question. Did you say that the 0.7C testing requirement was removed or you are hoping to remove it? If so, what impact does that have on your smartphone qualification timeline?

Alek Valero: Another clarification question. Did you say that the 0.7C testing requirement was removed or you are hoping to remove it? If so, what impact does that have on your smartphone qualification timeline?

Speaker #2: And if so, what impact does that have on your smartphone qualification timeline?

Speaker #4: Yeah, our customers agreed to remove that as a must-do. They've agreed to actually have a variation of the 0.2C and 0.1C, so on, which is actually how the phone is actually used as a getting requirement.

Raj Talluri: Yeah. Our customers agreed to remove that as a must-do. They've agreed to actually have a variation of the 0.2C and 0.1C, so on, which is actually how the phone is actually used as a gating requirement. That does help. You know, in terms of timelines, it'll probably take a little bit longer because the 0.1C, 0.2C take longer to run. The 0.7C is a faster discharge. It's an accelerated test, but it hurts the battery. They realize it's hurting the battery, it's not really helping. In that sense, it may take a little bit longer to do 0.1C, 0.2C discharge because the time it takes to qualify is a little longer, at least on the first launches.

Speaker #4: So, that does help. In terms of timelines, it'll probably take a little bit longer because the 0.1C and 0.2C take longer to run. The 0.7C is a faster discharge.

Speaker #4: It's an accelerated test, but it hurts the battery. So they realize it's hurting the battery—it's not really helping. So, in that sense, it may take a little bit longer to do 0.1C or 0.2C discharge, because the time it takes to qualify is a little longer.

Speaker #4: At least on the first launches. But once we get to it, we understand what it is. We understand the trend. It should become normalized.

Raj Talluri: Once we get to it, we understand what it is, we understand the trend, it should become normalized.

Speaker #2: Got it. Thank you.

Ananda Baruah: Got it. Thank you.

Alek Valero: Got it. Thank you.

Speaker #3: Your next question will come from Bill Peterson with JPMorgan. Your line is open. Please ask your question.

Operator: Your next question will come from Bill Peterson with JP Morgan. Your line is open. Please ask your question.

Speaker #6: Yeah, hi. Good afternoon, and thanks for all the details on the call thus far. For AI 2, the 20% increase in energy density using this sort of next-generation platform, can you speak about the trade-offs of this, including cycle life, that we can consider?

Bill Peterson: Hi. Good afternoon, and thanks for all the details on the call thus far. For AI-2, the 20% increase in energy density, you know, using this sort of the next generation platform, can you speak about the trade-offs of this, including cycle life that we can consider? I realize this, at least in the first stages for eyewear, but assuming, I'm assuming that AI-1 will be your focus for your initial and second smartphone customer, but do you have a plan to sample AI-2 for smartphones next year, or is this longer dated? I'm basically trying to get a sense for what needs to be solved for the next gen to be used in smartphones.

Speaker #6: I realize this, at least in the first stages, for eyewear, but assuming I'm assuming that AI 1 will be your focus for your initial and second smartphone customer.

Speaker #6: But do you have a plan to sample AI 2 for smartphones next year, or is this longer dated? I'm basically trying to get a sense for what needs to be solved for the next gen to be used in smartphones and basically, it's a question we've asked in the past, but how should we think about your roadmap for smartphones beyond AI 1?

Bill Peterson: You know, basically it's a question we've asked in the past, but how should we think about your roadmap for smartphones beyond AI-1?

Speaker #4: Yeah. Absolutely. I mean, look, I think the advantages we showed with the 20% increase on the smart glasses, that's why we showed a little bit of color on how we got to that.

Raj Talluri: Yeah, absolutely. I mean, look, I think, the advantages we showed with the 20% increase on, you know, on the smart glasses, that's why we showed a little bit of color on how we got to that. We increased the cathode voltage, we reduced the amount of inactive materials in there. We will put those, we'll absolutely put those things into a smartphone battery, and you will see us improve it similarly. There's a few other things that we're continuing to improve. Packaging efficiency is one of them, how we actually package this. They're slightly different electrolytes. We have a strong roadmap that will keep increasing energy density.

Speaker #4: We increased the cathode voltage. We reduced the amount of inactive materials in there. We will put those—we'll absolutely put those things into our smartphone battery.

Speaker #4: And you will see us improve it similarly. There are a few other things that we're continuing to improve. Packaging efficiency is one of them—how we actually package this.

Speaker #4: They're slightly different electrolytes. So we have a strong roadmap that'll keep increasing energy density. I mean, the thing you got I mentioned to you, Bill, is that as I mentioned before, we use 100% silicon.

Raj Talluri: I mean, the thing you got, I mentioned to you, Bill, is that, as I mentioned before, we use 100% silicon, we're not getting the full potential of the energy density increase that 100% silicon could and should provide because we've been trying to solve these other problems like cycle life, 0.7C, you know, accelerated testing, fast charge and so on. Once we now work with the customers to get those things, you know, understood on how exactly to do the qualification, we will continue to improve our energy density. First instantiation of our improvement energy density will be showed in the AI-2 in the smart eyewear, we'll quickly roll that into the smartphones for next year.

Speaker #4: But we're not getting the full potential of the energy density increase that 100% silicon could and should provide, because we've been trying to solve these other problems like cycle life, 0.7 C, accelerated testing, fast charge, and so on.

Speaker #4: But once we know, work with the customers to get those things understood and how exactly to do the qualification, we'll continue to improve our energy density.

Speaker #4: And first instruction of our improvement energy density, we showed in the AI 2 in the smart glass. But we'll quickly roll that into the smartphones for next year.

Speaker #2: And I'll jump in as well here. The finance guys are happy to report that some of these key things on the roadmap not only improve the energy density, but also reduce cost out of the bill of materials and reduce the cost of manufacturers.

Ryan Benton: I'll just chime in as well here. You know, the finance guy's happy to report that some of these key things on the roadmap not only improve the energy density, but also reduce cost out of the bill of materials and reduce the cost to manufacture. It's really kind of magic time when that happens.

Speaker #2: So it's really kind of a magic time when that happens.

Speaker #6: Okay. And one other thing, Bill, maybe since you asked about the energy density roadmap—I know it's a question that's come up. Our batteries sell very little.

Bill Peterson: Okay, thanks.

Raj Talluri: One other thing, Bill, maybe since you asked about the energy density roadmap, I know it's a question that's come up. Our batteries swell very little, the existing batteries, even with the ones with the silicon-doped, still swell. Most of the smartphone OEMs actually leave a space in the phone to allow the battery to swell at end of life. We actually don't need that space. When, if we get that space also, that's what we're working with our customers, they allow us to use that, our energy density will be even higher. We will be, once we get to qualification, we will be able to take advantage of that piece also.

Speaker #6: So the existing batteries, even the ones with silicon dope, still swell. So most of the smartphone OEMs actually leave a space in the phone to allow the battery to swell at end of life.

Speaker #6: So we actually don't need that space. So if we get that space also, that's what we're working with our customers. They allow us to use that.

Speaker #6: Our energy density will be even higher. So once we get to qualification, we will be able to take advantage of that piece also.

Bill Peterson: All right. Thanks for that color. On the timeline to, for shifting or the general trend to move towards mechanical dicing, are there any new challenges that we need to be mindful of? I'm wondering about, you know, particles or mechanical stress or other technical issues you need to overcome. Maybe even said another way, why wasn't mechanical dicing the primary path for this relative to laser dicing?

Speaker #6: All right. Thanks for that color. On the timeline for shifting or the general trend to move towards mechanical dicing, are there any new challenges that we need to be mindful of?

Speaker #6: I'm wondering about particles or mechanical stress or other technical issues you need to overcome. Or maybe even said another way, why wasn't mechanical dicing the primary path for this relative to laser dicing?

Speaker #4: Well, I mean, again, as you saw in the video, I wanted to show you guys a little bit of the machine. This is a complex machine that we've been working on building for a while.

Raj Talluri: Well, I mean, you know, again, as you saw in the video, I wanted to show you guys a little bit of the machine. This is a complex machine that we've been working on building for a while. It's not like we just take a roller and put a roll in it, right? We have to build roll-to-roll roller, we have to ablate, you know, we have to dice it, we have to find the right kind of binders and materials to actually make the right kind of coating in the electrolyte so that, as you said, when you do it mechanically, it still holds. There's a lot of R&D, a lot of know-how has gone into it. We've been working on it for since I joined. In that sense, I'm very excited by it.

Speaker #4: It's not like you just take a roller and put a roll in it, right? So we have to build roll to roll roller. We have to ebalate.

Speaker #4: We have to dice it. We have to find the right kind of binders and materials to actually make the right kind of coating and the electrolytes so that, as you said, when you do it mechanically, it still holds.

Speaker #4: So there's a lot of R&D, a lot of know-how has gone into it. We've been working on it since I joined. So in that sense, I'm very excited by it—it's a great technology that our teams have advanced.

Raj Talluri: It's a great technology that our teams have advanced. There's still, you know, again, there's still issues to be solved, right? We have to finish the dicing of it, we have to finish the anode, finish the cathode, and put it in a full cell. We're gonna take this year to actually do that because we have enough lasers to, you know, meet all the demand we have for this year. Absolutely next year is when we'd like to roll that out.

Speaker #4: And there are still, again, there are still issues to be solved, right? So we have to finish the dicing of it. We have to finish the anode, finish the cathode, and put it in a full cell.

Speaker #4: So we're going to take this year to actually do that because we have enough lasers to meet all the demand we have for this year.

Speaker #4: And absolutely, next year is when we'd like to roll that out.

Speaker #6: Great. And if I could sneak one more in, on the part that TJ wrote—so, 72 to 75 tests to lifecycle, and one below-freezing power test.

Bill Peterson: Great. If I could sneak one more in. On the part that TJ wrote, 72 to 75 tests, 2 life cycle and 1 below freezing power test.

Bill Peterson: I'm not sure about the freezing power test. Is there any insights to how your expectations? I think you feel more confident about the cycle life. What about this freezing power test? Something that I don't think I've heard much about in the past.

Speaker #6: I think the power—I'm not sure about the freezing power test—but is there any insight into how your expectations are? I think you feel, I think you feel more confident about the cycle life.

Speaker #6: But what about this freezing power test? That's something I don't think I've heard much about in the past.

Speaker #4: Yeah. It's one of those corner use cases, because what happens is, silicon behaves differently than graphite at very low temperatures. So if your phone with a silicon battery is extremely cold, when you start using the phone and you suddenly have a use case where you pull a lot of energy out very quickly,

Raj Talluri: Yeah. It's one of those corner use cases because what happens is silicon behaves differently than graphite at very low temperatures. If you have a phone with a silicon battery at extremely cold, when you start using the phone and you suddenly have a use case where you pull a lot of energy out, it's very quickly, you know, there are some challenges to how much energy battery can put out. These are the kind of situations where we're working very closely with our customers to see at what use cases does this happen, how much does it pull in which parts of the world, and so on. It's again, like the 0.7C test, silicon is different from graphite, so the tests you had before don't quite work exactly the same.

Speaker #4: There are some challenges to how much energy can battery can put out. So these are the kind of situations where we're working very closely with our customers to see at what use cases does this happen, how much does it pull in, and which parts of the world, and so on.

Speaker #4: So it's, again, like the 0.7C test, silicon is different from graphite. So the tests you had before don't quite work exactly the same. But so that's one of those things that we are working with them.

Raj Talluri: You know, that's one of those things that we are working with them. I do believe that we will slowly get past that also as we continue with the journey.

Speaker #4: And I do believe that we will slowly get past that also, as we continue with the journey.

Speaker #6: Thanks, Raj. And Ryan, for the details.

Bill Peterson: Thanks, thanks, Raj, and Ryan for the details.

Speaker #2: Yeah. Thanks, sir.

Robert Lahey: Yeah.

Ryan Benton: Yeah.

Robert Lahey: Thanks, sir.

Ryan Benton: Thanks, sir.

Speaker #1: Your next question will come from Gus Richard with Northland Capital. Please unmute your audio and ask your question.

Operator: Your next question will come from Gus Richard with Northland Capital. Please unmute your audio and ask your question.

Speaker #6: Yes, thanks for taking the questions. You mentioned the $130 million of pipeline for military products. Is that an annual number, or is that a lifetime opportunity?

Gus Richard: Yes, thanks. Taking the questions. You mentioned the $130 million in pipeline for military product projects. Is that an annual number, or is that, you know, a lifetime opportunity? You know, how much currently, how much capacity in Korea do you have to support that?

Speaker #6: And currently, how much capacity in Korea do you have to support that?

Speaker #4: Yeah, so it's a total we keep in terms of what are the new designs that we are talking to customers about, and they're coming. So we can update that every quarter.

Raj Talluri: Yeah. It's a total we keep in terms of what are the new designs that we are talking to customers and they're coming. We, you know, we can update that every quarter. It's not like annual, it's lifetime of those designs we have. They may take 1 year, they may take 2 years, you know, time to launch. We have enough capacity right now, but we are adding capacity now. As Ryan mentioned, we are building out that factory more. Fortunately, in the last acquisition we made, we got almost 300,000 square feet of factory with lots of buildings, power, and dry rooms and so on. Very good acquisition we were fortunate to get from SolarEdge.

Speaker #4: It's not like annual. It's the lifetime of those designs we have. They may take one year, they may take two years, time to launch. We have enough capacity right now, but we are adding capacity now, as Ryan mentioned.

Speaker #4: We are building out that factory more. Fortunately, in the last acquisition we made, we got almost 300,000 square feet of factory with lots of buildings and power and dry rooms and so on.

Speaker #4: Very good acquisition. We were fortunate to get from SolarEdge. We are now fitting it to keep increasing the capacity, in line with the demand, because the qualifications take a little time.

Raj Talluri: We are now fitting it to keep increasing the capacity in line with the demand because the qualifications take a little time. We are going to work on the capacity increase in line with that demand.

Speaker #4: So, we are going to work on the capacity increase in line with that demand.

Gus Richard: On a relative basis, of course, this is, you know, roughly standard equipment.

Speaker #2: In a relative basis, of course, this is relatively standard equipment. So it's just blocking and tackling.

Ryan Benton: On a relative basis, of course, this is, you know, roughly standard equipment.

Raj Talluri: Right.

Gus Richard: It's just blocking and tackling. Got it. When you mentioned the eyewear customer, I believe you said it was a reference design, and I was wondering if that's an OEM or a chip company's reference design.

Ryan Benton: It's just blocking and tackling.

Speaker #6: Got it. And then when you mentioned the eyewear customer, I believe you said it was a reference designer. I was wondering if that's an OEM or a chip company's reference design.

Gus Richard: Got it. When you mentioned the eyewear customer, I believe you said it was a reference design, and I was wondering if that's an OEM or a chip company's reference design.

Speaker #4: Yeah. I mean, again, because of confidentiality, I can't really exactly comment more than who that is. But one thing I'll say is eyewear, maybe I had a little color to it.

Raj Talluri: Yeah. Well, you know, again, because of confidentiality, I can't really exactly comment more than who that is. One thing I'll say is eyewear, let me add a little color to it. If you actually think of things like eyewear, they are things people wear on their, on their personality. It's a very style-based thing. Most of the eyewear things we buy, as you know, comes from fashion brands, right? Like, I mean, you can think of Guccis and Pradas and Ray-Bans and, you know, and so on that you buy from Sunglass Hut. Most of the tech companies or even chip companies and so on, will actually make a reference platform. The ultimate product is actually branded as a fashion product, right?

Speaker #4: If you actually think of things like eyewear, there are things people wear on their personalities. So it's a very style-based thing. So most of the eyewear things we buy, as you know, comes from a fashion brand, right?

Speaker #4: So, I mean, you can think of Gucci's and Prada's and Ray-Bans and so on that you buy from Sunglass Hut. So most of the tech companies, or even chip companies and so on, will actually make a reference platform.

Speaker #4: So the ultimate product is actually branded as a fashion product, right? So that's why it's very key to get a reference design with one of those leading technology providers so that then the channel to market can be through the fashion brands.

Raj Talluri: That's why it's very key to get a reference design, you know, with one of those leading technology providers so that then the channel to market can be through the fashion brands.

Speaker #6: Got it. Thanks so much.

Gus Richard: Got it. Thanks so much.

Speaker #2: Thanks, Gus.

Raj Talluri: Thanks, Gus.

Ryan Benton: Thanks, Gus.

Gus Richard: Yeah.

Raj Talluri: Yeah.

Speaker #4: Yeah.

Speaker #1: There are no further questions at this time. With that, I'd like to turn it over to Dr. Raj Talluri for closing remarks.

Operator: 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 #4: Yeah. I mean, thank you, everyone, and thank you for all the questions. Over the past year, much of the discussion has been on validation of the technology and its commercial readiness.

Raj Talluri: Yeah, I mean, thank you everyone, and thank you for your, all the questions. You know, over the past year, much of the discussion has been on validation of the technology and its commercial readiness. You know, we believe this quarter we provided additional evidence, and the conversation can increasingly shift towards, you know, disciplined execution against commercialization milestones. The markers to watch over the coming quarters are clear, right? A continued progress on qualification, targeted system-level deployments, initial smart frame production ramp, and conversion of this drone pipeline into revenue. Now, we view these as tangible operational milestones that we expect will demonstrate progress methodically over time. Thank you all for your support.

Speaker #4: We believe this quarter we provided additional evidence, and the conversation can increasingly shift towards disciplined execution against commercialization milestones. The markers to watch over the coming quarters are clear, right?

Speaker #4: Continued progress and qualification targeted system-level deployments, initial SmartFrame production ramp, and conversion of these drone pipeline into revenue. Now, we view these as tangible operational milestones that we expect will demonstrate progress methodically over time.