Q2 2026 Enovix Corp Earnings Call

August 12, 2026

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

Operator: Thank you for standing by, and welcome to the Enovix Corporation Q2 2026 earnings conference call. Currently, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. As a reminder, today's program will be recorded. I'd like to introduce your host for today's program, Monica Gould, Investor Relations for Enovix. Please go ahead.

Operator: Thank you for standing by, and welcome to the Enovix Corporation Q2 2026 Earnings Conference call. Currently, all participants are in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. As a reminder, today's program will be recorded. I'd like to introduce your host for today's program, Monica Gould, Investor Relations for Enovix. Please go ahead.

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, Monica Gould, investor relations for Enovix.

Speaker #1: Please go ahead.

Speaker #2: Thank you, operator. I would like to welcome everyone to Enovix Corporation's second quarter 2026 financial results conference call. Joining me today are President and Chief Executive Officer Dr. Raj Talluri, and Chief Financial Officer Ryan Benton.

Monica Gould: Thank you, operator. I would like to welcome everyone to Enovix Corporation's Q2 2026 financial results conference call. Joining me today are President and Chief Executive Officer, Dr. Raj Talluri, and Chief Financial Officer, Ryan Benton. Raj and Ryan will be speaking to the slide presentation displayed on today's webcast, which will also be posted along with our press release on our investor relations website at ir.enovix.com. They will provide prepared remarks, and we will then open the call for questions. Before we begin, please note that today's 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 a number of 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: Raj and Ryan will be speaking to the slide presentation displayed on today's webcast, which will also be posted along with our press release on our investor relations website at ir dot enovix dot com.

Speaker #2: They will provide prepared remarks, and we will then open the call for questions. Before we begin, please note that today's call contains forward-looking statements that are subject to risks and uncertainties.

Monica Gould: Before we begin, please note that today's 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 a number of 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: These statements are based on current expectations and may differ materially from actual future results due to a number of factors. For 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 IR website. All statements made on this call are as of today, August 12, 2026, and we undertake no obligation to update them except as required by law.

Monica Gould: You can also find these materials on our IR website. All statements made on this call are as of today, 12 August 2026, and we undertake no obligation to update them except as required by law. During the call, we may also reference non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in the materials posted on our IR website. With that, I will turn the call over to Raj.

Speaker #2: During the call, we may also reference non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in the materials posted on our IR website.

Speaker #2: And with that, I will turn the call over to Raj.

Speaker #3: Good afternoon, everyone, and thank you for joining us. The second quarter showed momentum across all three or four primary target markets. In smartphones, we reached an important qualification milestone. Our lead customer confirmed that our cells passed more than 1,000 cycles on the 0.2C discharge cycle test.

Raj Talluri: Good afternoon, everyone, and thank you for joining us. The Q2 showed momentum across all three of our primary target markets. In smartphones, we reached an important qualification milestone. Our lead customer confirmed that our cells passed more than 1,000 cycles on the 0.2C discharge cycle test. We have one final cycle life test, and it's already well underway. We expect to finish the remaining testing by the end of 2026, with the customer acceptance and smartphone field testing to follow. In smart eyewear, the production ramp of our lead customer has begun. We shipped approximately 2,100 batteries to a tier 1 customer, recorded our first smart eyewear product revenue from this customer, and expect to deliver roughly nine times that volume in the Q3. In drones, defense, and industrial, we grew the pipeline by 41% from the Q1. Drones led the way.

Speaker #3: We have one final cycle life test, and it is already well underway. We expect to finish the remaining testing by the end of 2026, with customer acceptance and smartphone field testing to follow.

Speaker #3: In smart eyewear, the production ramp of our lead customer has begun. We shipped approximately 2,100 batteries to a tier-one customer, recorded our first smart eyewear product revenue from this customer, and expect to deliver roughly nine times that volume in the third quarter.

Raj Talluri: We shipped approximately 2,100 batteries to a Tier 1 customer, recorded our first smart eyewear product revenue from this customer, and expect to deliver roughly 9x that volume in the Q3. In drones, defense, and industrial, we grew the pipeline by 41% from the Q1. Drones led the way.

Speaker #3: In drones, defense, and industrial, we grew the pipeline by 41% from the first quarter. Drones led the way; we advanced product development, and the drone pipeline alone exceeds over $100 million now.

Raj Talluri: We advanced product development, and the drone pipeline alone exceeds over $100 million now. Revenue for the quarter came in at the high end of our guidance, and we expect continued sequential growth in Q3. What is increasingly clear is that Enovix has multiple paths for growth that reinforce one another. Our 100% silicon anode AI platform is progressing towards smartphone deployment, while smart eyewear has entered commercial production. That sequencing is by design. From the start, my strategy has been to go after the hardest market first, smartphones, because meeting the most demanding energy density requirements forces us to build the best product. Everything we prove at the smartphone level then flows naturally into adjacent categories. Smart eyewear is the clearest example, where the same platform is now shipping commercially.

Speaker #3: Revenue for the quarter came in at the high end of our guidance, and we expect continued sequential growth in the third quarter. What is increasingly clear is that Enovix has multiple paths for growth that reinforce one another.

Speaker #3: Our 100% silicon anode AI platform is progressing toward smartphone deployment, while smart eyewear has entered commercial production. That sequencing is by design. From the start, my strategy has been to go after the hardest market first—smartphones—because meeting the most demanding energy density requirements forces us to build the best product.

Speaker #3: Everything we prove at the smartphone level then flows naturally into adjacent categories. Smart eyewear is the clearest example, where the same platform is now shipping commercially.

Speaker #3: Meanwhile, our MX platform takes that same silicon know-how and manufacturing discipline and aims it at defense—a big, fast-growing, high-value market. Our established South Korea operations are serving defense and industrial customers today, and their extensive experience with drones, in particular, is opening substantially larger opportunities.

Raj Talluri: Our MX platform takes that same silicon knowhow and manufacturing discipline and aims it at defense, a big, fast-growing, high-value market. Our established South Korea operations are serving defense and industrial customers today, and their extensive experience with drones, in particular, is opening substantially larger opportunities. Briefly on the two platforms. The AI platform uses our proprietary 100% silicon anode architecture for space-constrained applications, where the volumetric energy density and cycle life are most critical. While the MX platform blends silicon with graphite for greater gravimetric energy density and high-power performance, manufactured at our proven facility in South Korea. These are not isolated businesses, they are mutually reinforcing. We are seeing these convergence translate into new areas for growth today. We are working on silicon blended opportunities beyond our traditional drone, defense, and industrial markets. Drilling down a bit further.

Speaker #3: Briefly on the two platforms, the AI platform uses our proprietary 100% silicon anode architecture for space-constrained applications where the volumetric energy density and cycle life are most critical, while the MX platform blends silicon with graphite for greater gravimetric energy density and high-power performance, manufactured at our proven facility in South Korea.

Speaker #3: These are not isolated businesses; they are mutually reinforcing. And we're seeing this convergence translate into new areas for growth today. We're working on silicon-blended opportunities beyond our traditional drone defense and industrial markets.

Speaker #3: Drilling down a bit further, first on smartphones, we moved materially closer to completing qualification with our lead customer. The customer has now confirmed the sales passed more than 1,000 cycles under the 0.2-seat discharge cycle test.

Raj Talluri: First, on smartphones, we moved materially closer to completing qualification with our lead customer. The customer has now confirmed the cells passed more than 1,000 cycles under the 0.2C discharge cycle test. This is the same test our internal testing indicated when we shared it with you in February. The customer's own data has now borne it out. Fundamentally, this is a customer-confirmed evidence that our silicon anode batteries can perform at high levels. Remaining work to be done is an accelerated cycle life test built around a hybrid protocol we defined in close collaboration with our customer to replace the traditional 0.7C testing approach for legacy graphite batteries. Testing is now live across several combinations of charge and discharge conditions, as well with an enhanced cell design. The same progression is underway.

Speaker #3: This is the same test our internal testing indicated when we shared it with you in February. The customer's own data has now borne it out.

Speaker #3: Fundamentally, this is customer-confirmed evidence that silicon anode batteries can perform at high levels. The remaining work to be done is an accelerated cycle life test, built around a hybrid protocol we defined in close collaboration with our customer to replace the traditional 0.7C-rate testing approach for legacy graphite batteries.

Speaker #3: Testing is now live across several combinations of charge and discharge conditions, as well as with an enhanced cell design. And the same progression is underway.

Speaker #3: The enhanced cells are now showing stronger capacity retention or internal work, and the data is now with our lead customer's hands for evaluation along with multiple variants of the hybrid protocol.

Raj Talluri: The enhanced cells are now showing stronger capacity retention or internal work, and the data is now with our lead customer's hands for evaluation, along with multiple variants of the hybrid protocol. We anticipate completing this final test in 2026. Our second smartphone OEM is also moving towards a similar qualification framework, and we expect to begin sample deliveries in Q4. As we look towards 2027, we see the pattern repeating and expanding. Our lead customer moving into commercial interaction with our second OEM advancing through qualification and additional leading OEMs with whom we are in active dialogue, entering the qualification pipeline behind them. We pioneered the qualification testing pathway for silicon batteries and smartphones, so every customer after the first gets a faster, clearer path to execution and deployment.

Speaker #3: We anticipate completing this final test in 2026. Our second smartphone OEM is also moving toward a similar qualification framework, and we expect to begin sample deliveries in the fourth quarter.

Speaker #3: As we look toward 2027, we see the pattern repeating and expanding—our lead customer moving into commercial introduction, with our second OEM advancing through qualification, and additional leading OEMs, with whom we are in active dialogue, entering the qualification pipeline behind them.

Speaker #3: We pioneered the qualification testing pathway for silicon batteries and smartphones, so every customer after the first gets a faster, clearer path to execution and deployment.

Speaker #3: I'm especially proud of our progress in smart eyewear, which has now moved from initial production into early commercial revenue with a tier-one customer. Recently, we completed a key international safety certification of our cells and battery packs as well as a full suite of customers' reliability tests.

Raj Talluri: I'm especially proud of our progress in smart eyewear, which has now moved from initial production into early commercial revenue with a tier 1 customer. Recently, we completed a key international safety certification for cells and battery packs, as well as a full suite of customer reliability tests. We shipped approximately 2,100 AI1 batteries in Q2 and recognized our first smart eyewear product revenue. We have now delivery orders in hand for approximately 19,000 packs, which we're planning to deliver in Q3, a roughly nine-fold increase from Q2. Those delivery orders are part of the customer's 50,000 unit pack order. We expect to ship the remaining balance in Q4. Beyond 2026, we expect shipment volumes to grow as our customers' downstream deployments expand.

Speaker #3: We shipped approximately 2,100 AI1 batteries in Q2 and recognized our first smart eyewear product revenue. We have now delivery orders in hand for approximately 19,000 packs, which we are planning to deliver in the third quarter at roughly 9-fold increase from Q2.

Speaker #3: Those delivery orders are part of the customer's 50,000-unit pack order, we expect to ship the remaining balance in the fourth quarter. Beyond 2026, we expect shipment volumes to grow as our customers' downstream deployments expand.

Speaker #3: Turning to our defense sector, I'm proud of the team's execution from initial product launch in the first quarter to substantial increase in our drone pipeline in the second quarter to customer sampling beginning now in the third quarter.

Raj Talluri: Turning to our defense sector, I'm proud of the team's execution from initial product launch in Q1 to substantial increase in our drone pipeline in Q2 to customer sampling beginning now in Q3. The pipeline for products manufactured in South Korea increased 41% to approximately $183 million from the $130 million at the end of Q1. As a reminder, this figure represents the estimated peak annual production value. The lifetime opportunity is often many multiples more. More than half the growth came from drone opportunities, which now exceed $100 million on their own. Let me walk through what's inside that number. Because the funnel you see on the slide, more than $40 million of this pipeline is at stages where customers are actively evaluating and testing our cells or designing them into products.

Speaker #3: The pipeline for products manufactured in South Korea increased 41% to approximately $183 million from $130 million at the end of the first quarter.

Speaker #3: As a reminder, this figure represents the estimated peak annual production value, the lifetime opportunities often many multiples more. More than half the growth came from drone opportunities, which now exceed 100 million dollars on their own.

Speaker #3: Let me walk through what's inside that number. Because the funnel you see on the slide more than 40 million of this pipeline is at stages where customers are actively evaluating and testing our cells or designing them into products, and the breadth is striking, including some of the most recognized names in defense technology and consumer electronics.

Raj Talluri: The breadth is striking, including some of the most recognized names in defense technology and consumer electronics. We also introduced MX1 to a broader set of customers at industry events in the United States and Europe. At approximately 360 watt-hours per kilogram while supporting high continuous and pulse discharge, MX B01 is designed to improve mission execution, flight time, range, and payload capability. We've already ordered additional production equipment for the MX1 B01, and we expect it to be operational by mid-2027, with initial commercial shipments and revenue expected to follow as that capacity comes online and customer programs complete qualification. This pipeline growth is also a commercial execution story.

Speaker #3: We also introduced MX1 to a broader set of customers and industry events United States and Europe. At approximately 360 watt-hours per kilogram while supporting high continuous and pulse discharge MXB01 is designed to improve mission execution.

Speaker #3: Flight time range and payload capability. We've already ordered additional production equipment for the MX1B01, and we expect it to be operational by mid-2027, with initial commercial shipments and revenue expected to follow as that capacity comes online and customer programs complete qualification.

Speaker #3: This pipeline growth is also a commercial execution story. For the past two quarters, we've been deliberately building out our commercial organization. Adding application engineers and product management talent and we then brought in Steve Bekos, a seasoned sales veteran with more than 35 years in the global semiconductor industry, with most recently running large global accounts at Infineon, to lead our sales and application engineering teams under Samir Anaragi, our chief business officer.

Raj Talluri: For the past two quarters, we've been deliberately building out our commercial organization adding application engineers and product management talent. We then brought in Steve Bakos, a seasoned sales veteran with more than 35 years in the global semiconductor industry, with most recently running large global accounts at Infineon, to lead our sales and application engineering teams under Samira Naraghi, our Chief Business Officer. You're seeing the early results in that funnel. Our South Korea operation is a meaningful advantage in pursuing these programs. It combines an established history serving defense customers with in-house manufacturing, quality, and supply chain capabilities in a TAA designation country. Our South Korea supply is TAA compliant today and ready for the expected mid-2027 capacity ramp, and we expect NDAA compliance across multiple product SKUs.

Speaker #3: You're seeing the early results in that funnel. Our South Korea operation is a meaningful advantage in pursuing these programs. It combines an established history serving defense customers with in-house manufacturing quality and supply chain capabilities in a TAA designated country.

Speaker #3: Our South Korea supply is TAA compliant today and ready for the expected mid-2027 capacity ramp, and we expect NDAA compliance across multiple product SKUs.

Speaker #3: In July, our drone battery completed UN38.3 transportation testing, clearing an important step for commercial shipment, and we're commencing sampling with numerous customers in the third quarter.

Raj Talluri: In July, our drone battery completed UN 38.3 transportation testing, clearing an important step for commercial shipment, and we are commencing sampling with numerous customers in Q3. The next phase of Korea capacity is expected to come online in mid-2027. A very capital efficient expansion utilizing existing land and buildings we own and using readily available equipment. The economics are attractive as well. ASPs are healthy, and because we own our own manufacturing, we believe the scaled volume can support solid margins. Beyond the current product, MX2 remains targeted for 2027 with a goal of reaching 400 watt hours per kilogram. Let me now come back to the AI platform. We produced the first AI2 engineering samples in Q1.

Speaker #3: The next phase of Korea capacity is expected to come online in mid-2027. A very capital-efficient expansion utilizing existing land and buildings we own and using readily available equipment.

Speaker #3: The economics are attractive as well, ASPs are healthy and because we own our own manufacturing, we believe the scales volume can support solid margins.

Speaker #3: Beyond the current product, MX2 remains targeted for 2027 with the goal of reaching 400 watt-hours per kilogram. Let me now come back to the AI technology platform.

Speaker #3: We produced the first AI2 engineering samples in the first quarter. AI2 is expected to provide approximately 20% higher volumetric energy density than AI1 by combining thinner materials better packaging efficiency and higher cathode voltage through our EX3M technology node.

Raj Talluri: AI2 is expected to provide approximately 20% higher volumetric energy density than AI1 by combining thinner materials, better packaging efficiency, and higher cathode voltage through our EX3M technology node. We sampled cells to one tier 1 smart eyewear customer in Q2. Many of the same EX3M innovations are expected to carry into the future smartphone batteries and support another meaningful step forward in performance in that area as well. I want to give you some insight into how our pace of innovation is also accelerating, as is something I am particularly focused on. In batteries, the grading factor on development speed is cycle life testing. A full cycle life test has historically taken four to five months. That sets the tempo of learning in the entire industry. We are developing AI models that can predict cycle life outcomes much earlier in the cycle life test than has historically been the case.

Speaker #3: We sampled cells to one tier-one smart eyewear customer in Q2. Many of the same EX3M innovations are expected to carry into future smartphone batteries and support another meaningful step forward in performance in that area as well.

Speaker #3: I want to give you some insight into how our pace of innovation is also accelerating. As this is something I'm particularly focused on. In batteries, the grading factor and development speed is cycle-life testing, a full cycle-life test has historically taken four to five months.

Raj Talluri: In batteries, the grading factor on development speed is cycle life testing. A full cycle life test has historically taken four to five months. That sets the tempo of learning in the entire industry. We are developing AI models that can predict cycle life outcomes much earlier in the cycle life test than has historically been the case.

Speaker #3: That sets the tempo of learning in the entire industry. We are developing AI models that can predict cycle-life outcomes much earlier in the cycle-life test than has historically been the case.

Speaker #3: Our models for eyewear cells are getting close and we're making very good progress and smartphone cell modeling as well. To be clear, customer qualification will always be the physical test.

Raj Talluri: Our models for eyewear cells are getting close, and we are making very good progress on smartphone cell modeling as well. To be clear, customer qualification will always be the physical test, but this is about how fast we can learn and iterate internally. If we get this right, every design generation ramps faster, and that speed itself becomes a durable competitive advantage. Turning to manufacturing, Q2 showed continued improvements across fab 2, with particularly strong results through most of the smart eyewear production flow. In fact, our smart eyewear cell output came in well ahead of our internal plan for the quarter, and our integral yield, the cumulative yield across the entire production line, has now improved for three consecutive quarters. Outside Zone 1, all but one process step operated yields of at least 95% with individual steps as high as 99.6%.

Speaker #3: But this is about how fast we can learn and iterate internally. If we get this right, every design generation arrives faster and that speed itself becomes a durable competitive advantage.

Speaker #3: Turning to manufacturing, the second quarter showed continued improvements across fab two, with particularly strong results through most of the smart eyewear production flow. In fact, our smart eyewear cell output came in well ahead of our internal plan for the quarter and our integral yield, the cumulative yield across the entire production line has now improved for three consecutive quarters.

Raj Talluri: In fact, our smart eyewear cell output came in well ahead of our internal plan for the quarter, and our integral yield, the cumulative yield across the entire production line, has now improved for three consecutive quarters. Outside Zone 1, all but one process step operated yields of at least 95% with individual steps as high as 99.6%.

Speaker #3: Outside Zone One, all but one process step operated yields of at least 95%, with individual steps as high as 99.6%. Zone One dicing remains our primary throughput bottleneck and a top focus, but the yield has improved to approximately 84% from 80% in the first quarter.

Raj Talluri: Zone 1 dicing remains our primary throughput bottleneck and a top focus, but the yield has improved to approximately 84% from 80% in Q1. Zone 1 has been a stubborn constraint for a long time. This is exactly why we changed approach rather than simply tuning it. The hybrid dicing configuration uses laser and mechanical processes where each is most effective and is designed to lift Zone 1 throughput to multiples of today's rate. The step change we need to support the production volumes we are planning for 2027. Several of the key mechanical dicing steps are expected to come online around the year end. Supporting all of this execution is our growing team in India. A team, in addition to conducting advanced research, directly supports manufacturing execution at both Malaysia and South Korea factories.

Speaker #3: Zone one has been a stubborn constraint for a long time. This is exactly why we changed the approach, rather than simply tuning it. The hybrid dicing configuration uses laser and mechanical processes where each is most effective, and is designed to lift zone one rate.

Speaker #3: The step change we need to support the production volumes we are planning for 2027. Several of the key mechanical dicing steps are expected to come online around the year-end.

Speaker #3: Supporting all of these executions is our growing team in India—a team that, in addition to conducting advanced research, directly supports manufacturing execution at both our Malaysia and South Korea factories.

Speaker #3: Finally, I want to spend a moment on leadership because I'm thrilled to have Michael Vaivoda on board as a chief operating officer. Michael brings decades of operations experience including at Apple.

Raj Talluri: Finally, I want to spend a moment on leadership because I am thrilled to have Michael Wywrot on board as the Chief Operating Officer. Michael brings decades of operations experience, including at Apple. He has a full scope mandate across manufacturing, supply chain, quality, and customer delivery. His immediate priorities are increasing smart eyewear output, preparing manufacturing for smartphone, field test builds, and driving the cost, yield, and delivery output improvements underway. Adding Michael gives me even more confidence that we have the right team for the next phase of scale. With that, I will turn the call over to Ryan to review our financial results and outlook.

Speaker #3: He has a full scope mandate across manufacturing, supply chain, quality and customer delivery. He's immediate priorities are increasing smart eyewear output, preparing manufacturing for smartphone field test builds, and driving the cost, yield, and delivery output improvements underway.

Speaker #3: Adding Michael gives me even more confidence that you're the right team for the next phase of scale. With that, I will turn the call over to Ryan to review our financial results and outlook.

Speaker #1: Thanks, Raj. We delivered another quarter of revenue growth and positive gross profit. We came in better than our operating loss guidance, and we ended the quarter with over $550 million in cash on the balance sheet.

Ryan Benton: Thanks, Raj. We delivered another quarter of revenue growth and positive gross profit. We came in better than our operating loss guidance, and we ended the quarter with over $550 million in cash on the balance sheet, all while continuing to invest in the customer programs and manufacturing work that support the next phase of commercialization. Q2 revenue was $9 million, up 21% year over year and 19% sequentially at the high end of our guidance, our fifth consecutive quarter of year over year revenue growth. Defense shipments from South Korea remained the largest contributor, while smart eyewear generated its first product revenue. Modest in amount, but an early proof point of contribution from AI powered wearable devices. GAAP gross profit was $1.3 million and non-GAAP gross profit was $1.8 million, representing GAAP and non-GAAP gross margins of 14.4% and 19.9% respectively.

Speaker #1: All while continuing to invest in the customer programs and manufacturing work that support the next phase of commercialization. Second quarter revenue was $9 million, up 21% year-over-year and 19% sequentially.

Speaker #1: At the high end of our guidance, our fifth consecutive quarter of year-over-year revenue growth. Defense shipments from South Korea remained the largest contributor, while smart eyewear generated its first product revenue.

Ryan Benton: Defense shipments from South Korea remained the largest contributor, while smart eyewear generated its first product revenue. Modest in amount, but an early proof point of contribution from AI powered wearable devices. GAAP gross profit was $1.3 million and non-GAAP gross profit was $1.8 million, representing GAAP and non-GAAP gross margins of 14.4% and 19.9% respectively.

Speaker #1: Modest in amount but an early proof point of contribution from AI-powered wearable devices. Gap gross profit was 1.3 million dollars and non-gap gross profit was 1.8 million dollars representing gap and non-gap gross margins of 14.4% and 19.9% respectively.

Speaker #1: The year-over-year decline in quarterly margin primarily reflected the mix of battery products sold through our South Korea operation, rather than a change in underlying execution.

Ryan Benton: The year over year decline in quarterly margin primarily reflected the mix of battery products sold through our South Korea operation rather than a change in underlying execution. Even with that change in mix, this was our seventh consecutive quarter of positive gross profit on both a GAAP and non-GAAP basis. The H1 non-GAAP gross margin was up year over year to 22.8% from 21.3%. Non-GAAP operating expenses were $30.6 million compared with $28.8 million a year ago. The increase reflects continued spending on smartphone qualification, product development, and manufacturing readiness, including support for the smart eyewear ramp. Non-GAAP loss from operations came in at -$28.8 million, better than our guidance range of a loss of -$29 million to -$32 million. Adjusted EBITDA was -$18.9 million compared with -$20.1 million in Q2 2025.

Speaker #1: Even with that change in mix, this was our seventh consecutive quarter of positive gross profit on both a gap and non-gap basis and the first half non-gap gross margin was up year over year to 22.8% from 21.3%.

Speaker #1: Non-gap operating expenses were 30.6 million dollars compared with 28.8 million dollars a year ago the increase reflects continued spending on smartphone qualification product development and manufacturing readiness including support for the smart eyewear ramp.

Speaker #1: Non-GAAP loss from operations came in at $28.8 million, better than our guidance range of a loss of $29–32 million. Adjusted EBITDA was negative $18.9 million compared with negative $20.1 million in the second quarter of 2025.

Speaker #1: In non-gap net loss per share was 13 cents at the favorable end of our guidance range of a loss of 13 to 17 cents and unchanged year over year.

Ryan Benton: Non-GAAP net loss per share was -$0.13, at the favorable end of our guidance range of a loss of -$0.13 to -$0.17, and unchanged year over year. Turning to cash flow, net cash used in operating activities was -$21.8 million, down from -$25.9 million in Q2 2025. Free cash flow was an outflow of -$31.4 million versus -$33.8 million a year ago, both better year over year despite higher capital expenditures supporting our manufacturing scale-up. The operating improvement primarily reflected favorable working capital changes. Capital expenditures were $9.6 million, principally supporting manufacturing readiness and capacity expansion. We ended the quarter with approximately $552.1 million in cash equivalents, and marketable securities, including restricted cash. That liquidity allows us to fund the qualification and commercialization milestones already underway while preserving flexibility for selective strategic investments. We did not repurchase any shares during the quarter.

Speaker #1: Turning to cash flow, net cash used in operating activities was 21.8 million dollars down from 25.9 million dollars in the second quarter of 2025.

Speaker #1: And free cash flow was an outflow of $31.4 million versus $33.8 million a year ago. Both are better year-over-year despite higher capital expenditures supporting our manufacturing scale-up.

Speaker #1: The operating improvement primarily reflected favorable working capital changes. Capital expenditures were $9.6 million, principally supporting manufacturing readiness and capacity expansion. We ended the quarter with approximately $552.1 million in cash, cash equivalents, and marketable securities, including restricted cash.

Ryan Benton: We ended the quarter with approximately $552.1 million in cash equivalents, and marketable securities, including restricted cash. That liquidity allows us to fund the qualification and commercialization milestones already underway while preserving flexibility for selective strategic investments. We did not repurchase any shares during the quarter.

Speaker #1: That liquidity allows us to fund the qualification and commercialization milestones already underway, while preserving flexibility for selective strategic investments. We did not repurchase any shares during the quarter. Our capital deployment priorities remain unchanged: product qualification completion, disciplined manufacturing investment, and commercial execution.

Ryan Benton: Our capital deployment priorities remain unchanged: product qualification completion, disciplined manufacturing investment, and commercial execution. For Q3, we expect revenue between $9 million and $10 million, up approximately 13% to 25% year-over-year. The range assumes continued defense and industrial shipments from South Korea and a significant sequential increase in smart eyewear deliveries. We expect non-GAAP loss from operations between $29 million and $32 million, and non-GAAP net loss per share between $0.13 and $0.17. We expect capital expenditures between $8 million and $12 million, primarily for Fab2 initiatives and South Korea capacity expansion Raj discussed. As always, quarter-to-quarter revenue and gross margin can vary based on product mix, customer delivery timing, and the pace of qualification and commercial program ramps.

Speaker #1: For the third quarter, we expect revenue between $9 and $10 million, up approximately 13% to 25% year over year. The range assumes continued defense and industrial shipments from South Korea and a significant sequential increase in smart eyewear deliveries.

Speaker #1: We expect non-GAAP loss from operations between $29 million and $32 million, and non-GAAP net loss per share between $0.13 and $0.17. We expect capital expenditures between $8 million and $12 million, primarily for Fab 2 initiatives and South Korea capacity expansion Raj discussed.

Speaker #1: As always quarter to quarter revenue and gross margin can vary based on product mix customer delivery timing and the pace of qualification and commercial program ramps.

Speaker #1: For the third quarter specifically two factors will shape gross margin product mix in our South Korea business and the early cost of the smart eyewear ramp before volumes reach scale.

Ryan Benton: For Q3 specifically, two factors will shape gross margin: product mix in our South Korea business and the early costs of the smart eyewear ramp before volumes reach scale. We will continue to manage spending with discipline and align our investments with measurable customer product and manufacturing milestones. With that, let me turn the call back over to Raj for some closing thoughts before we open the call up for questions.

Speaker #1: We will continue to manage spending with discipline and align our investments with measurable customer, product, and manufacturing milestones. And with that, let me turn the call back over to Raj for some closing thoughts before we open the call up for questions.

Speaker #2: Thank you Ryan. This quarter all three of our markets moved forward at the same time. Smartphone silicon batteries passed a critical milestone. Smart eyewear entered its revenue generation stage and our drone and defense pipeline is growing rapidly.

Raj Talluri: Thank you, Ryan. This quarter, all three of our markets moved forward at the same time. Smartphone silicon batteries passed a critical milestone. Smart eyewear entered its revenue generation stage, and our drone and defense pipeline is growing rapidly. The milestones to watch from here are just as clear. Completing the final accelerated smartphone qualification test, initial sample deliveries to a second smartphone OEM, the smart eyewear ramp, converting drone and defense opportunities into design wins, and continued improvement in manufacturing throughput and cost. With that, operator, we are ready to take questions.

Speaker #2: The milestones to watch from here are just as clear: completing the final accelerated smartphone qualification test and initial sample deliveries to our second smartphone OEM.

Speaker #2: The smart eyewear ramp, converting drone and defense opportunities into design wins, and continued improvement in manufacturing throughput and cost. With that, operator, we're ready to take questions.

Speaker #3: We will now begin the Q&A session. Please note that this call is being recorded. If you would like to ask a question please use the raise hand feature on your screen.

Operator: We will now begin the Q&A session. Please note that this call is being recorded. If you would like to ask a question, please use the raise hand feature on your screen. Questions will be answered in the order they are received. Please ask one question and one follow-up at most. We will now pause a moment to assemble the queue. Our first question will come from Colin Rusch with Oppenheimer. Your line is open. Please go ahead.

Speaker #3: Questions will be answered in the order they are received. Please ask one question and one follow-up at most. We'll now pause a moment to assemble the queue.

Speaker #3: Our first question will come from Colin Rusch with Oppenheimer. Your line is open. Please go ahead.

Speaker #4: Thanks so much, guys. I just want to get a sense of volumes as you start to ramp the eyewear business line. How do we want to think about total volumes to get to that optimal margin level, and how many quarters do you think it'll take to get there?

Colin Rusch: Thanks so much, guys. I just want to get a sense of volumes as you start to ramp the eyewear business line. You know, how do we want to think about total volumes to get to the optimal margin level, and how many quarters do you think it will take to get there?

Speaker #2: Yeah I thank you Colin. I can take a shot at it and then Ryan will add some more commentary on margins and so on.

Raj Talluri: Yeah, I thank you, Colin. I can take a shot at it, and then Ryan will add some more commentary on margins and so on. Firstly, you know, we are actually very pleased with the progress in manufacturing on this small cell, right? Going from a few thousand packs to now roughly 19,000 next quarter, and on the way to fulfilling a 50,000-pack order. This shows our confidence in manufacturing of this cell on our technology platform in our Penang fab, and I'm really proud of what the team has done there. Look, the market itself, as I said the last quarter, the market is multiple millions of units and expected to grow year after year. We are sampling now to different customers who are in, like, various stages of building the products.

Speaker #2: You know, firstly, we are actually very pleased with the progress in manufacturing on these small cells, right? Going from a few thousand packs to now roughly 19,000 next quarter, and on the way to fulfilling 50,000-pack quarters.

Speaker #2: This shows our confidence in the manufacturing of this cell on our technology platform in our Penang fab, and I'm really proud of what the team has done there.

Speaker #2: Look, the market itself—as I said last quarter—the market is multiple millions of units and expected to grow year after year.

Speaker #2: We are sampling now to different customers who are in various stages of building their products. Exactly how much we'll ship will depend upon how successful their products are and what share we win.

Raj Talluri: Exactly how much we'll ship, you know, will depend upon how successful their products are and what share we win. But I can say this, the feedback we've got from the customers is the cell has been very strong, mainly driven by the energy density we provide in this small form factor, and it's translating into much longer battery life, particularly with AI running on these glasses. So maybe, Ryan, you want to take on the margins?

Speaker #2: But I can say this the feedback we've got from the customers is a cell has been very strong mainly driven by the energy density we provide in this small form factor and it's translating into much longer battery life particularly with AI running on these glasses.

Speaker #2: So maybe Ryan you want to take on the margins and.

Speaker #4: Yeah no that's fair. I mean look not to be repetitive but we you know we ship 2,100 units in queue. The absolute revenue from that is nominal of course you know on pricing specifically you know I'm not going to quote a number there you know particularly because we're dealing with one single important customer and so I can't really go into those economics but what matters for us really you know I consider most important is that we build scale is that we get into a position of incumbency into the growing and growing market.

Ryan Benton: Yeah, no, that's fair. I mean, look, not to be repetitive, but we, you know, we shipped 2,100 units in Q. The absolute revenue from that is nominal. Of course, on pricing specifically, I'm not going to quote a number there, particularly because we're dealing with one single important customer, and so I can't really go into those economics. But what matters for us really, I consider most important is that we build scale, is that we get into a position of incumbency into the growing market. We want to be the default battery of choice for smart R wear. Specifically, kind of finishing off on margins, of course, even at the 50,000 unit level for the year, that can absorb the overhead burden that it will face as those costs start to move in geography from operating expenses up above the gross margin line.

Speaker #4: We want to be the default, better choice for smart eyewear. Specifically, kind of finishing off on margins, you know, of course, even at the 50,000-unit level for the year, that can absorb the overhead burden that it will face as those costs start to move in geography—from operating expenses up above the gross margin line.

Ryan Benton: Specifically, kind of finishing off on margins, of course, even at the 50,000 unit level for the year, that can absorb the overhead burden that it will face as those costs start to move in geography from operating expenses up above the gross margin line.

Speaker #4: So we expect it to be negative margin for the balance of the year it really as we ramp ultimately as we get to some version of scale and I you know I'm not going to quote a specific number of what the breakeven point is Raj talked about the market growing as the customer adoption the pull through starts to happen we do expect to have healthy gross margins.

Ryan Benton: We expect it to be negative margin for the balance of the year. It really, as we ramp, ultimately, as we get to some version of scale, and I am not going to quote a specific number of where the breakeven point is. Raj talked about the market growing. As the customer adoption, the pull-through starts to happen, we do expect to have healthy gross margins.

Speaker #4: Okay excellent. And then in the drone market obviously there's a lot of different applications and so I want to get a sense of how you're sitting within that opportunity and which applications you're competing well on and you know what are the key drive which products are really driving some of that progress that you're making in that end market.

Colin Rusch: Okay, excellent. In the drone market, obviously there is a lot of different applications, and so I want to get a sense of how you are sitting within that opportunity and which applications you are competing well on, and which products are really driving some of that progress that you are making in that end market.

Speaker #2: Yeah on the drone market we are seeing tremendous amount of interest from many customers you know one of the main reasons is we now have an extremely competitive cell you know with they're the main metric is you know what hours per kilogram.

Raj Talluri: Yeah. On the drone market, we are seeing tremendous amount of interest from many customers. One of the main reasons is, we now have an extremely competitive cell. There, the main metric is watt-hours per kilogram. That cell actually is made fully in our own factories. It is a TAA compliant country in South Korea, and we expect it to get to NDAA compliant path across multiple SKUs in 2027. This factory, you might remember, Colin, has more than a decade of production history on this site, so into military applications. The main markets we are getting into there are markets where they want a few hundred cycles, for example, of flying time and also safety, public safety, interceptor drones, ISR, and markets like that. These are the markets that I feel like have a good margin profile and a lot of demand.

Speaker #2: And that cell actually is made fully in our own factories, and it's, you know, TAA-compliant—country is South Korea—and we expect it to get to NDA-compliant path across multiple SKUs in 2027.

Speaker #2: And this factory you know you might remember Colin as you know more than a decade of production history on this site. So you know into military applications.

Speaker #2: The main markets we're getting into there are markets where, you know, they want a few hundred cycles, for example, of flying time and safety—interceptor drones, you know, ISR, and markets like that.

Raj Talluri: The main markets we are getting into there are markets where they want a few hundred cycles, for example, of flying time and also safety, public safety, interceptor drones, ISR, and markets like that. These are the markets that I feel like have a good margin profile and a lot of demand.

Speaker #2: These are the markets that I feel like have good margin profile and a lot of demand. And our expectation is that the demand is actually going to outstrip the supply here very quickly with many many many many customers wanting that.

Raj Talluri: Our expectation is that the demand is actually going to outstrip the supply here very quickly, with many customers wanting that. We are super excited that we have our own factory that we are able to make it in, where the margin profile will be really good. We are adding more capacity there, and as I mentioned in the prepared remarks, we expect that capacity to come online in mid 2027.

Speaker #2: And we are super excited that we have our own factory that we're able to make it in, where the margin profile will be really good.

Speaker #2: And we are adding more capacity there and as I mentioned in the prepared remarks we expect that capacity to come online in mid-2027.

Speaker #4: Yeah if I could chime in as well. I mean as we you know go through the names of the pipeline and look at it these are some of the best companies in the world.

Ryan Benton: Yeah, if I could chime in as well. As we go through the names of the pipeline and look at it, these are some of the best companies in the world, so some really exciting opportunities. Of course, drones is a big portion and majority of that funnel that is building right now, and we expect that to be strong for many years to come. Then there are other technologies that we think will build right on top of this. I think robotics is another example that we look a few years out, we think it is going to be a big market as well.

Speaker #4: So, some really exciting opportunities. Of course, you know drones is, you know, a big portion—the majority—of that fund that's building right now.

Speaker #4: We expect that to be strong for many years to come, but then there are other technologies that we think will build, you know, right on top of this.

Speaker #4: So, I think robotics is another example that, if we look a few years out, we think is going to be a big market as well.

Speaker #3: Your next question will come from Ruplu Bhattacharya with Bank of America your line is open please go ahead. Ruplu your line is open if you could unmute and please ask your question.

Operator: Your next question will come from Ruplu Bhattacharya with Bank of America. Your line is open. Please go ahead. Ruplu, your line is open. If you could unmute and please ask your question.

Speaker #5: Hi can you guys hear me now?

Ruplu Bhattacharya: Hi, can you guys hear me now?

Speaker #4: Yes sir.

Ryan Benton: Yes, sir.

Speaker #5: All right. I had two questions. Raj now that both the lead smartphone customer as well as the second smartphone OEM they've moved to a silicon specific qualification framework.

Ruplu Bhattacharya: All right. I had two questions. Raj, now that both the lead smartphone customer as well as the second smartphone OEM, they have moved to a silicon-specific qualification framework. How standardized do you think this will become in the industry, and what steps are you taking to enable that? Does the second OEM now have essentially the same qualification path as the lead customer? When do you expect POs from the first customer as well as the second customer? I have a follow-up.

Speaker #5: How standardized do you think this will become in the industry and what steps are you taking to enable that and does the second OEM now have essentially the same qualification path as the lead customer and when do you expect POs from the first customer as well as the second customer and have a follow up.

Speaker #2: Yeah, so good question. Yes, I think what has happened is over the work we've done over the last couple of quarters, we've really been able to convince the customers that when you move from, you know, graphite anodes to 100% silicon anodes, some of the legacy tests are not very representative of how the battery will actually perform in real life, which is, I think, a huge step forward that we've been able to accomplish.

Raj Talluri: Yeah. Ruplu, good question. Yes, I think what has happened is, or the work we have done over the last couple of quarters, we have really been able to convince the customers that when you move from graphite anodes to 100% silicon anodes, some of the legacy tests are not very representative of how the battery will actually perform in real life. Which is, I think, a huge step forward that we have been able to accomplish. As I mentioned, in February, we talked about this 0.2C cycle life test, where we are internally seeing that we should be able to go past 1,000 cycles. Now the customer has confirmed that on their own test. So we are very happy about that. The one test that is left is really the accelerated cycle life test.

Speaker #2: And as I mentioned you know in February we talked about this point to see cycle life test where we're internally seeing that we should be able to go past 1,000 cycles.

Speaker #2: Now the customer has confirmed that on their own test. So we are very you know happy about that. And the one test that's left is really the accelerated cycle life test where you know if you just do at a normal cycle life point to see just takes a long time so people really need an accelerated test.

Raj Talluri: Where if you just do at a normal cycle life point to see, it just takes a long time, so people really need an accelerated test. We have now worked with the customers to come up with a hybrid protocol, which is some combination of the different rates of discharge, and that is what our lead customer is running now. There are two or three different protocols that we work with them on. Our expectation is one of them will meet the requirements that they have in Q4. Then we expect to get to a small build of, they will put the battery inside the phone to see how it performs, and then we start getting into volume production in 2027 and so on.

Speaker #2: We've now worked with the customers to come up with a hybrid protocol, which is, you know, some combination of the different rates of discharge, and that's what the customers are running. Our lead customer is running now—this two or three different protocols that we worked with them on.

Speaker #2: And, you know, our expectation is one of them will meet the requirements that they have in Q4. Then we expect to get to, you know, a small build of, you know, they'll put the battery inside the phone to see how it performs, and then we start getting into volume production in 2027 and so on.

Speaker #2: We do continue to talk to our other customers too and then we talk to them about we have good engineering relationship where we talk about these protocols.

Raj Talluri: We do continue to talk to our other customers, too, and then we talk to them about, we have a good engineering relationship where we talk about these protocols. I do expect in time that the market will adapt and change to these kind of protocols because silicon behaves differently than graphite in accelerated tests.

Speaker #2: I do expect in time that the market will adapt and change to these kind of protocols because you know silicon behaves differently than graphite in accelerated tests.

Speaker #5: Okay. Okay thanks for the details there. As a follow up can I ask you've made many manufacturing improvements in Fab 2. What is the manufacturing capacity now as it stands today of HVM1 as well as the agility line.

Ruplu Bhattacharya: Okay. Thanks for the details there. As a follow-up, can I ask, you have made many manufacturing improvements in Fab 2. What is the manufacturing capacity now as it stands today of HVM1 as well as the agility line? Can you give us a sense for how much max units of smartphones and eyewear that each of these lines can support? Thank you.

Speaker #5: Can you give us a sense for like how much max units of smartphones and eyewear that each of these lines can support. Thank you.

Speaker #2: Yeah I mean look like I said when we first said what the lines were we have continued to keep that. You know 1,350 UPH was what the nameplate capacity of the line was.

Raj Talluri: Yeah. Look, like I said, when we first said what the lines were, we have continued to keep that. 1,350 UPH was what the nameplate capacity of the line was. We have not really staffed to all of that because we are managing that through the qualification timeline with the customer, so that when the demand is there, we are there. Again, it is not really a question of how much capacity we have, it is more a question of pacing that line with the right number of people and working on the yields and working on the ramp in line with as the customer qualification is going. That is kind of where we are on that.

Speaker #2: We haven't really staffed to all of that because we are you know managing that through the qualification timeline with the customers so that when the demand is there we are there.

Speaker #2: And again it's not really a question of how much capacity we have. It's more a question of pacing that line in with the right number of people and working on the yields and working on the RAM in line with as the customer qualifications are going.

Speaker #2: So that's kind of where we are on that.

Speaker #3: Your next question will come from Mark Shooter with William Blair your line is open please go ahead.

Operator: Your next question will come from Mark Strouse with William Blair. Your line is open. Please go ahead.

Speaker #6: Hey guys you can hear me right.

Mark Strouse: Hey, guys. You can hear me, right?

[Analyst] (William Blair): Hey, guys. You can hear me, right?

Speaker #4: Yes sir.

Ryan Benton: Yes, sir.

Speaker #6: Awesome. Thanks Ryan. And hey Raj congrats on you know passing the 1,000 cycles that's a big accomplishment. I do think that we thought that this would be the last milestone the stage gate though.

Mark Strouse: Awesome. Thanks, Ryan. Raj, congrats on passing the 1,000 cycles. That's a big accomplishment. I do think that we thought that this would be the last milestone, the stage gate, though. So can you walk us through what the last tests, what are we trying to prove there? I know it's a hybrid approach, but is there something that your lead smartphone customer saw that required a little bit more digging in? Any color there would be helpful.

[Analyst] (William Blair): Awesome. Thanks, Ryan. Raj, congrats on passing the 1,000 cycles. That's a big accomplishment. I do think that we thought that this would be the last milestone, the stage gate, though. So can you walk us through what the last tests, what are we trying to prove there? I know it's a hybrid approach, but is there something that your lead smartphone customer saw that required a little bit more digging in? Any color there would be helpful.

Speaker #6: So can you walk us through what the last tests what are we trying to prove there. I mean I know it's a hybrid approach but is there something that you know your lead smartphone customer saw that required a little bit more digging in.

Speaker #6: Any color there would be helpful.

Speaker #2: Yeah the last test basically is what I call accelerated test which basically means that they would like to discharge at a faster rate as I mentioned but not just all the way at the high rate but some combination of a faster rate and some combination of a slower rate which is kind of more representative of what a phone might actually do in the real world.

Raj Talluri: Yeah. The last test basically is what I call accelerated test, which basically means that they would like to discharge at a faster rate, as I mentioned, but not just all the way at the high rate, but some combination of a faster rate and some combination of a slower rate, which is more representative of what a phone might actually do in the real world. We are working with them on the protocol that actually will get that done. They have a number that we need to meet to get to that. That's what we are working on. The next stage after that is to actually do the test inside a phone, right? These are bench tests on the battery on the table. So that's the next step to it.

Speaker #2: And we are working with them on the protocol that actually will get that done. And they have a number that we need to meet to you know to get to that.

Speaker #2: And that's what we are working on. You know the next stage after that is to actually do the test inside a phone right. These are bench tests on the battery on the table.

Speaker #2: So that's the next step to it. Like I said, the main gating item right now is an accelerated cycle life test so they can complete the test in time.

Raj Talluri: Like I said, the main gating item right now is an accelerated cycle life test so they can complete the test in time. We have multiple protocols that we are working jointly with the customer, and they're all underway. By Q4, we expect to see some good results.

Speaker #2: And we have multiple protocols that we are working on jointly with the customer, and they're all underway. By the fourth quarter, we expect to see some good results.

Ryan Benton: Mark, at the risk of being repetitive again, it is like go back to the February print. We showed in the presentation and talked about how we passed the 0.2C test internally. We were waiting on the customer to run that test themselves, that is what we have put in the headline here today. We are very proud of that. We have got that independent verification from the customer. What we also talked about in the February print and follow up in the May print was the 0.7C test. That is the traditional graphite test that we need to define a proxy or a substitute. Now we have got the framework in place. We mentioned last quarter, now we have cells running under a handful of separate variant protocols. We expect one or more of those to pass by the end of the year.

Speaker #4: And Mark at the risk of being repetitive again it's like go back to the February print and we and we showed in the presentation and talked about how we passed the point to see test internally.

Speaker #4: We were waiting on the customer to run that test themselves, and that's what we've, you know, put in the headline here today. We're very proud of that—we've got that independent verification from the customer.

Speaker #4: But we also talked about in the February print and follow up in the May print was the point seven C test. And that's the traditional graphite test that we needed to find a proxy or a substitute and now we've you know we've got the framework in place.

Ryan Benton: Now we have got the framework in place. We mentioned last quarter, now we have cells running under a handful of separate variant protocols. We expect one or more of those to pass by the end of the year.

Speaker #4: We mentioned, you know, last quarter, and now we have cells running under a handful of separate variant protocols. And we expect, you know, one or more of those to pass by the end of the year.

Speaker #6: Okay, got it. Thanks, guys. Switching over to the drone opportunity—which, as you know, is increasing here with a $100 million pipeline. That's a big number.

Mark Strouse: Okay. Got it. Thanks, guys. Switching over to the drone opportunity, which is increasing here with a $100 million pipeline. That is a big number, it is an exciting business. What I am interested in is, can you walk us through maybe some of the timeframe of what that engagement looks like with a customer? You have $5 million in wins already, but can you walk us through how long it may take to move somebody from a pipeline opportunity to subsequent steps? Is it nine to 18 months?

[Analyst] (William Blair): Okay. Got it. Thanks, guys. Switching over to the drone opportunity, which is increasing here with a $100 million pipeline. That is a big number, it is an exciting business. What I am interested in is, can you walk us through maybe some of the timeframe of what that engagement looks like with a customer? You have $5 million in wins already, but can you walk us through how long it may take to move somebody from a pipeline opportunity to subsequent steps? Is it nine to 18 months? When do you see some of a decent conversion from that pipeline opportunity into backlog?

Speaker #6: And it's exciting business. The what I'm interested in is can you walk us through maybe some of the time frame of what that engagement looks like with a customer.

Speaker #6: So you have 5 million in wins already. But can you walk us through how long it may take to move somebody from a pipeline opportunity to you know down subsequent steps is it 9 18 months and when do you see some of decent conversion from that pipeline opportunity into backlog.

Mark Strouse: When do you see some of a decent conversion from that pipeline opportunity into backlog?

Speaker #2: Yeah, you know, like as I mentioned, right, I think we have a pipeline that has grown significantly. Now, the $5 million is only just a design been awarded one.

Raj Talluri: Yeah. As I mentioned, I think we have a pipeline that has grown significantly. The $5 million is only just a design been awarded one. The better number is like there is $40 million already in active testing and designing for the customers with our cells right now. Defense qualification cycles are shorter than smartphones, because just of the need of what they need to get to production faster. The revenue and scale aligns with our Korea capacity coming online in mid-2027. We start to expect to see ramp of some of this pipeline in mid-2027. Again, this capital expansion is very capital efficient because it is on the land and buildings we already own.

Speaker #2: The better number is, like, there are 40 million already in active testing and design inside the customers with ourselves right now. Defense qualification cycles are shorter than smartphones because of the need to get to production faster.

Speaker #2: And the revenue and scale aligns with our Korea capacity coming online in mid-2027. So, we start to expect to see, you know, a ramp of some of this pipeline in mid-2027.

Speaker #2: And again this capital expansion is you know very capital efficient because it's on the land and buildings we already own.

Speaker #4: Yeah and I could comment as well because I you know I said to the same pipeline reviews it's you know there's some splits within that group as well right.

Ryan Benton: Yeah. If I could comment as well, because I sit through those same pipeline reviews. There are some splits within that group as well, right? The drone companies themselves, they are all trying to move really fast in my opinion, so 6 to 9 months, and we are sampling those, and quite frankly, within our internal teams, the cell teams, everyone is fighting over samples in terms of how we prioritize. Then there is the separate split of the defense primes. As we start to focus on supporting those type of activities, those tend to be a little bit longer runway. So, 18 months I think is not an unfair number to say what we think the average time is to get to production with some of those.

Speaker #4: So, the drone companies themselves, you know, they're all trying to move really fast, in my opinion, and so six to nine months.

Speaker #4: And we're sampling those and quite frankly within our internal teams and cell teams everyone's fighting over fighting over samples in terms of how we prioritize.

Speaker #4: And then there's the separate split of the defense primes and as we start to focus on supporting of you know those type of activities those tend to be a little bit longer runway.

Speaker #4: So, you know, 18 months is, you know, I think it's not an unfair number to say what we think the average time is to get to production with some of those.

Speaker #4: But those represent some enormous opportunities and and so in both of these areas it's really about us you know putting capacity in place and and the the equipment that we've ordered and is in flight right now pardon the the pun is is just hopefully the beginning.

Ryan Benton: But those represent some enormous opportunities, and so in both of these areas, it is really about us putting capacity in place and the equipment that we have ordered and is in flight right now, pardon the pun, is just hopefully the beginning.

Speaker #3: Your next question will come from Derek Soderbergh with Cantor Fitzgerald. Your line is open, please go ahead.

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

Speaker #5: Yeah hey guys thanks for taking the questions. Just to clarifying question here first Raj you were talking about the testing earlier. Just wanted to confirm the second smartphone OEM is accepting the point to see testing standard or they I think you had said they're you know sort of a few different options.

Derek Soderberg: Yeah. Hey, guys. Thanks for taking the questions. Just a clarifying question here first, Raj. You were talking about the testing earlier. Just wanted to confirm the second smartphone OEM is accepting the 0.2C testing standard, or I think you had said there are sort of a few different options. But just wanted to confirm that second smartphone customer is sort of accepting the 0.2C.

Speaker #5: But just wanted to confirm that second smartphone customer is sort of accepting the point to see.

Speaker #2: Yeah, I mean, look, we're focused on the first one first, and when that one gets to the right stage, we will sample the second one.

Raj Talluri: Yeah. Look, we are focused on the first one first. When that one gets to the right stage, we will sample the second one. We have talked to all of them about silicon being different, and they all understand that. I think that some of them have launched some amount of silicon-doped batteries already, so they do understand that they behave differently. I think my expectation is the whole market will move towards that in time.

Speaker #2: But we have talked to all of them about, you know, silicon being different, and they all understand that. And I think, you know, some of them have launched some amount of silicon-doped batteries already.

Speaker #2: So they do understand that they may have differently. So I think my expectation is the whole market will will move towards that in time.

Ryan Benton: Is it fair to say each one should be easier and easier? We are not planning-

Speaker #4: Is fair to say each one should be easier and easier.

Raj Talluri: Yeah, because once you do first time, right. Yeah.

Speaker #2: Yeah because once you do first time right. Yeah.

Ryan Benton: Yeah.

Speaker #5: Got it. That's helpful. And then just on the zone one yields you know improved quite a bit since Q1. I was wondering if that was mostly the dicing configuration.

Derek Soderberg: Got it. That is helpful. Then just on the Zone 1 yields, improved quite a bit since Q1. I was wondering if that was mostly via the dicing configuration. Then just kind of a high-level question on yield. Where do you guys feel like you need to get before you can really ramp up production? Maybe a yield number that gives you the confidence to invest in additional capacity, just with the assumption that demand is not the issue.

Speaker #5: And then just kind of a high level question on yield. Where do you guys feel like you need to get before you can really ramp up production you know maybe a yield number that gives you the confidence to invest in additional capacity just you know with the assumption that demand's not the issue.

Speaker #4: You made other perspective that one. You know I think you know Raj has talked for several quarters. And I've emphasized as well in terms of you know we're we're making steady progress and we're doing things in in kind of an orderly fashion.

Ryan Benton: You may have to, first have at that one. Raj has talked for several quarters, and I have emphasized as well, in terms of we are making steady progress, and we are doing things in an orderly fashion in order to kind of meet our customer commitments. I think it has been time to put a lot of steady progress, and a lot of focus on just kind of grinding out discipline yield wins. There is a lot of tactical things that go in to represent and be reflected in that 4 percentage point increase. So there is mechanical changes, there is process changes, there is a lot of different things. The team in Malaysia has done just a fantastic job grinding out those wins.

Speaker #4: And in order to kind of meet our customer commitments. And so, I think there's just been—it has been time to put a lot of steady progress and a lot of focus on just kind of grinding out, you know, disciplined yield wins.

Speaker #4: And so there's a lot of—there's a lot of tactical things that go into, and are reflected in, that, you know, 4 percentage point increase.

Speaker #4: So there's there's you know mechanical changes there's process changes as well the different things. And the team in in Malaysia has done just a fantastic job grinding out those grinding out those wins.

Speaker #4: And you know, Michael, who's joined as COO, we think is a great addition and adds to the team. He's over there in Malaysia this week and reporting good things.

Ryan Benton: Michael, who has joined as COO, we think is a great addition and adds to the team, and he is over there in Malaysia this week and reporting good things, and I think he is going to just help with the momentum of progress. In terms of yield, to be able to start a ramp well, we are starting the commercial ramp with smartwear, so we feel good about it. We feel good that we are on a glide path, and we have got a path to the gross margins that we want to need. I do not think the margins that we would target as baseline margins in order to start a real high-volume ramp is going to be any different than any other typical manufacturing concern.

Speaker #4: And I think he's going to just help with the momentum of progress in terms of yield, to be able to start a ramp.

Speaker #4: Well, I mean, we're starting the commercial ramp with SmartWare, so we feel good about it. We feel good that we're on a glide path, and we've got a path to the gross margins that we want and need.

Speaker #4: And I don't I don't think the the margins that we would target is is baseline margins in order to start a real high volume ramp is is going to be any different than any other typical manufacturing concern.

Speaker #2: Yeah, and just continuous improvement. Yeah. Thank you.

Raj Talluri: Yeah, and just continuous improvement. Yeah. Thank you.

Speaker #4: Pure words. Yeah.

Ryan Benton: Fewer words. Yeah. Is that better?

Speaker #3: Your next question will come from Bill Peterson with JP Morgan. Please unmute your line and ask your question.

Operator: Your next question will come from Bill Peterson with J.P. Morgan. Please unmute your line and ask your question.

Speaker #6: Yeah, good afternoon. Thanks for taking the questions. Maybe picking up on that last topic—so, you have the new COO, Michael. Do you expect that he'd be probably more focused on Malaysia, improving areas you just spoke to, or Korea, or somewhere in the supply chain? Just kind of any sort of tangible area where you think that you can get the most continuous improvement, using your words.

Bill Peterson: Yeah, good afternoon. Thanks for taking the questions. Maybe picking up on that last topic. So you have the new COO, Michael. Do you expect that he would be probably more focused on Malaysia, improving the areas that you just spoke to, or Korea, or somewhere in the supply chain? Just any sort of tangible area where you think that you can get the most continuous improvement, using your words.

Speaker #2: Yeah, I mean, you know, we don't—we don't, we know—I think we mentioned last time with KH, you know, who came to us with the tremendous experience from our Routejet acquisition, is now responsible for manufacturing at both the factories.

Raj Talluri: Yeah, I think we mentioned last time with KH, who came to us with the tremendous experience from our Routejade acquisition, is now responsible for manufacturing of both the factories. So Michael will be responsible for both the factories, in addition to advanced manufacturing machines that we need to build, in addition to supply chain, getting the right materials in place. So the entire operational side will be under him. I said in the prepared remarks, our Malaysia factory is benefiting quite a bit from our learning in Korea because we have done that battery manufacturing knowhow. With KH being there, the cross-pollination is happening tremendously. Also, our Korea factory is benefiting tremendously from our silicon knowledge and how that is actually helping us make a very competitive drone cell. Our India team is actually helping both of those.

Speaker #2: So Michael will be responsible for both the factories, in addition to the advanced manufacturing machines that we need to build. You know, in addition to supply chain, getting the right materials in place. So the entire operational side will be under him.

Speaker #2: And as I said in the prepared remarks, our Malaysia factory is benefiting quite a bit from our learning in Korea because we've developed that battery manufacturing know-how.

Speaker #2: And with KH being there you know the cross-pollination is happening tremendously. And also our Korea factory is benefiting tremendously from the from our silicon knowledge and how that's actually helping us make a very competitive drone drone cell.

Raj Talluri: With KH being there, the cross-pollination is happening tremendously. Also, our Korea factory is benefiting tremendously from our silicon knowledge and how that is actually helping us make a very competitive drone cell. Our India team is actually helping both of those. We have a tremendous R&D team in India, so it is a kind of a holistic set of teams that are all working together, and we do not separate that much as Malaysia and Korea as much as battery knowhow across both those.

Speaker #2: And our India team is actually helping both of those. We have a tremendous R&D team in India. So, it's a kind of a holistic, you know, set of teams that are all working together.

Raj Talluri: We have a tremendous R&D team in India, so it is a kind of a holistic set of teams that are all working together, and we do not separate that much as Malaysia and Korea as much as battery knowhow across both those.

Speaker #2: And we don't separate that much as Malaysia and Korea, as much as battery know-how across both those.

Speaker #6: Thanks for that, Raj. So also, the next one I guess maybe probably for Ryan, but the gross margin took a step down in the second quarter.

Bill Peterson: Thanks for that, Raj.

Raj Talluri: Yeah.

Bill Peterson: So, the next one, I guess maybe probably for Ryan, but the gross margin took a step down in Q2. You called mix primarily sold from South Korea.

Speaker #6: You called Nick's primarily sold from South Korea. Can you provide some more color on that? And I guess it sounds like you didn't really have any impact yet from the small volumes of the eyewear, but it sounds like you would, based off your expectations, that that might be a bigger impact.

Bill Peterson: Can you provide some more color on that? I guess it sounds like you didn't really have any impact yet from the small volumes of the eyewear, but it sounds like based off your expectations, that might be a bigger impact. So, how should we think about gross margin trajectory based off the prior comments around eyewear and maybe other mix ramifications from South Korea?

Speaker #6: So how should we think about gross margin trajectory based off the prior comments around eyewear and maybe other mixed ramifications from South Korea.

Speaker #4: Yeah, good question. I mean, look, first, I'd caution against reading, you know, one quarter as a trend. I think, more appropriately, if you look at the first half, on a first half basis, non-GAAP gross margin was 23 percent, I think, versus 21 percent in the prior year.

Ryan Benton: Well, good question. Look, first, I'd caution against reading one quarter as a trend. I think more appropriately, if you look at the H1 on a H1 basis, non-GAAP gross margin was 23%, I think, versus 21% in the prior year. So year to date, actually up two points. Q2 specifically, again, reflects the product mix and principally in the Korea-based business, which can be lumpy. Some SKUs carry better margins than others. It's just the case. Looking forward, obviously we don't guide gross margins. But the shape to understand is that the base business is there. Last year, if I recall, 2025 Q4 ended up being a stronger margin quarter than Q3.

Speaker #4: So year to date actually up two points. Q2 specifically again reflects the product mix in you know principally in the in the Korea-based business which can be lumpy.

Speaker #4: The some SKUs carry better margins than others. It's just the case. You know looking forward we don't you know obviously we don't guide gross margins but the shape to understand is that the base business is there.

Speaker #4: Last year, if I recall, Q4 '25 ended up being a stronger margin quarter than Q3. But there's no doubt, smart eyewear, as we ramp it, won't be big numbers, but it'll be a drag.

Ryan Benton: But there's no doubt, smart eyewear, as we ramp, it won't be big numbers, but it will be a drag on margins as we move into that ramp, as the overhead gets moved into gross margins. Again, from an operating income, from a cash flow basis, it's largely geography moving, and really, again, as we scale to 2027 and beyond, we expect that to rationalize as we scale.

Speaker #4: It'll be a drag on margins as we move into that ramp as the overhead gets moved into gross margins. Again from a from an operating income from a cash flow basis it's largely geography.

Speaker #4: Moving, and really again, as we scale to 27 and beyond, we expect that to rationalize as we scale.

Speaker #3: Your next question will come from Ananda Barua with Loop Capital. Your line is open. Please go ahead.

Operator: Your next question will come from Ananda Baruah with Loop Capital. Your line is open. Please go ahead.

Ananda Baruah: Hey, guys. Thanks a lot for taking the questions. Really appreciate it. I apologize if this has been asked already. To Raj, memory availability, does that have any impact, just because of the prolonged tightness, on any of the SKU qualifications on smartphone or PCs that you guys are targeting? Then I have a quick follow-up. Thanks.

Speaker #7: Hey guys. Thanks a lot for taking the questions. Really appreciate it. I apologize if this has been been asked already. To Raj's memory availability does that have any impact just because of the prolonged tightness on any of the like the SKU qualifications on on smartphone or PCs that that you guys are targeting.

Speaker #7: And then I have a quick follow-up, thanks.

Speaker #2: Not much for us yet. You know, we're not in high volume, so we're really in a qualification stage. So I think, you know, we don't see too much impact right now.

Raj Talluri: Not much for us yet. We're not in high volume, so we are really in a qualification stage. I think we do not see too much impact right now. The customers are worried about it, but not impacting us.

Speaker #2: The customers are worried about it but not impacting us.

Speaker #7: And and is there you know there's a component of what's going on where low-end phones low-end SKUs are you know are unable they're just exiting the market to some degree.

Ananda Baruah: And there's a component of what's going on where low-end phones, low-end SKUs are unable, they're just exiting the market to some degree. Would that impact you at all? Where exactly would you consider yourselves to be positioned inside of that SKU heat map?

Speaker #7: Would that impact you at all? Where exactly would you consider yourselves to be positioned inside of that heat map, that SKU heat map?

Speaker #2: I mean, really, we're in the technology qualification stage, and people really want to use us in their leadership products because that's where they see the most advantage of our technology.

Raj Talluri: Really, we are in technology qualification stage. People really want to use us in the leadership products because that's where they see most advantage of our technology and differentiation, and that's where we are being qualified. But I do expect that to waterfall down. Like I said, at this point, the SKU mix is not impacting us that much because we are working in the qualification stage. That'll come in time, but not right now.

Speaker #2: And differentiation, and that's where we are being qualified. But I do expect that to waterfall down, and like I said, at this point the SKU mix is not impacting us that much because we are working in the qualification stage.

Speaker #2: That'll come in time, not right now.

Ananda Baruah: Cool. If you, this is for our benefit, but if you thought about what your revenue mix is 3 years out, 5 years out, like that, different product segments, what do you think is a useful way for us to envision what the revenue contribution is to the company? Maybe anecdotal percentage. Percent this, percent that, not necessarily a revenue outlook.

Speaker #7: Cool. And if you sort of just if you I mean sorry this is for our benefit but if you thought about what your revenue mix is you know three years out five years out like that different product segments you know how how what do you think is a useful way for for us to envision what the the rev contribution is to the company.

Speaker #7: Maybe like sort of anecdotal percentage percent you know percent this percent that not not necessarily a rev outlook.

Speaker #4: And maybe I'll turn, and of course, we can't necessarily quote it—we can't quote a number or a specific. I will say it's going to be, I think, a pretty good horse race.

Ryan Benton: Maybe I'll turn to Raj. Of course, we can't necessarily quote a number or a specific. I will say, it's going to be, I think, a pretty good horse race. A year ago, if I think you asked that question, we were talking principally about smartphone, it'd be the obvious answer. I think the way that the drone market and the defense market has developed and the progress that we've made with product development, customer qualifications, and building the team, that has an opportunity to be a really big business really fast for us.

Speaker #4: You know, a year ago, if I think you asked that question, we were talking, you know, principally about smartphones—it'd be the obvious answer.

Speaker #4: I think the way that the drone market and the defense market have developed, and the progress that we've made with product development, customer qualifications, and building the team, that has an opportunity to be a really big business, really fast.

Speaker #7: Yeah, and again, smart eyewear could take off and become huge, and that could be good, too. So it's hard to call the mix, but I think all three markets for us are attractive and where our technology provides clear benefit to our customers, so that's probably the best way I'll say it.

Raj Talluri: Yeah. Again, smart eyewear could take off and become huge, that could be good too. It is hard to call the mix, but I think all three markets for us are attractive and where our technology provides clear benefit to our customers. So that is probably the best way I will say it. It is exciting times because everybody wants better batteries.

Speaker #7: It's exciting times because everybody wants better batteries. Awesome. That's helpful. That's helpful, guys. Thanks. Appreciate it.

Ananda Baruah: Awesome. That is helpful. That is helpful, guys. Thanks. Appreciate it.

Speaker #4: Thanks sir.

Ryan Benton: Thanks, sir.

Speaker #3: As a reminder, if you'd like to ask a question, please use the raise hand button at the bottom of your screen. Your next question will come from Jeff Osborne with TD Cowen. Your line is open; please ask your question.

Operator: As a reminder, if you would like to ask a question, please use the raise hand button at the bottom of your screen. Your next question will come from Jeff Osborne with TD Cowen. Your line is open. Please ask your question.

Speaker #1: Thank you. Just a quick one, Ryan—could you update us on where annual production capacity is at the South Korea facility now? And then Raj mentioned that you would be expanding and that would be up and running, I think, by the middle of '27.

Jeff Osborne: Thank you. Just a quick one, Ryan. Could you update us on where annual production capacity is at the South Korea facility now? Raj mentioned that you would be expanding, and that would be up and running, I think, by the middle of 2027. Just curious, where is it now, annual revenue capacity? Where are you headed, and then how much will it cost?

Speaker #1: So I was just curious where is where is it now annual revenue capacity where are you headed and then how much how much will it cost.

Speaker #4: Okay, I think I got all those subparts. Okay, thanks for the question. In terms of capacity there, I mean we're not operating at full capacity, so there's some headroom there.

Ryan Benton: Okay. I think I got all those sub-parts. Thanks for the question. In terms of capacity there, we are not operating at full capacity, so there is some headroom there. There is some complexity a layer down because there is different sets of equipment, so each different equipment line has different, some are at capacity, some are not. That is the reality of the current building. In terms of the capacity for the drone business, we have minimal right now. We have placed orders for new equipment that gets us what we think is significant material capacity coming on in the summer. That equipment is going to be tailored and customized to standard equipment, but configured for our specific product SKUs.

Speaker #4: There is some complexity layered in because there are different sets of equipment. Each different equipment line is different—some are at capacity, some are not.

Speaker #4: That's the reality of the current building. In terms of the capacity for the drone business, we have minimal right now. We have placed orders for new equipment that gets us what we think is significant material capacity coming on in the summer.

Speaker #4: And that equipment is going to be tailored and customized to standard equipment, but configured for our specific product SKUs.

Speaker #1: I guess just—are you preparing for this to be, like, a $100 million business 18 months from now? Is there any answer?

Jeff Osborne: I guess, just are you preparing for this to be a $100 million business 18 months from now? Is there any framework or sense of-

Ryan Benton: Yeah. I would say to answer, the capacity of that equipment, I guess I can quote that number, is roughly 1 million units. It is all embedded in the CapEx forecast that we are starting to make payments on. You see, I think it is 8 to 12 minutes that we guided, so that it is, as Raj cited, capital efficient. We have additional buildings and land there in South Korea, so we can add incremental capacity beyond that. Hopefully, this is just the first inning of that baseball game.

Speaker #4: That the capacity of that equipment I I guess I can quote that number is roughly a million units. And it's it's you know it's all embedded in the CAPEX forecast that we're starting to make payments on and you you see I think it's 8 to 12 minutes that we guide guided so the it's as Raj cited capital efficient we have additional buildings and land there in South Korea so we can add incremental capacity beyond that.

Speaker #4: So, hopefully this is just the first inning of that baseball game.

Speaker #2: Yeah. And our goal is to make sure that, as Samir and the team convert the pipeline into opportunities and into wins, we don't get capacity limited, right?

Raj Talluri: Yeah, our goal is to make sure that as Sameer Naraghi and the team converts the pipeline into opportunities into wins, we do not get capacity limited. We are staging it in that way, we are building the factory in that way, so that incrementally we can add capacity quickly. But up to 1 million units a year, as Ryan mentioned, we are already on track. So we can keep driving more on that as we see the design wins come in. We have the space and the building, so it is really not a problem.

Speaker #2: So, we are staging it in that way. We are building the factory in that way so that, incrementally, we can add capacity quickly.

Speaker #2: But, you know, up to a million units a year, as Ryan mentioned, we are already on track. So, we can keep driving more on that as we see the design wins come in.

Speaker #7: We have the space and the buildings, so it's really not a problem.

Speaker #1: Got it. Thank you. That's all I have.

Jeff Osborne: Got it. Thank you. That is all I had.

Speaker #7: Okay. Thanks.

Ryan Benton: Okay, thanks.

Speaker #2: Thank you. Yeah.

Raj Talluri: Thank you, Jeff. Yep.

Speaker #3: There are no further questions at this time. With that, I'd like to turn the call over to Dr. Raj Talluri for closing remarks.

Operator: There are no further questions at this time. With that, I would like to turn the call over to Dr. Raj Talluri for closing remarks.

Raj Talluri: Yeah. Thank you, all. Really great quarter. We are happy with all the progress we have made and look forward to seeing you next quarter.