Enovix Corporation

Thank you for standing by and welcome to the Inovix Corporation third quarter 2023 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. And now I'd like to introduce your host for today's program, Charlie Anderson, Senior Vice President of Investor Relations and Corporate Strategy. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to Inovix Corporation's third quarter 2023 Financial Results Conference call. With us today are President and Chief Executive Officer Dr. Raj Tuluri, Chief Financial Officer Farhan Ahmad, and Chief Operating Officer Ajay Murathe. Raj and Farhan will provide an overview, and then we'll take your questions. After the Q&A session, we'll conclude our call. Before we continue, let me kindly remind you that we released our third quarter 2023 shareholder letter after the market closed today. It's available on our website at ir.inovix.com. A replay of this video call will be available later today on the investor relations page of our website. Please note that the shareholder letter press release and this conference call all contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are based on current expectations and may differ materially from actual future events or results due to a variety of factors. For discussion of factors that could affect our future financial results in business, please refer to the disclosure in today's shareholder letter and our filings with the Securities and Exchange Commission. All our statements are made as of today, November 7th, 2023, based on information currently available to us. We can give no assurance that these statements will prove to be correct. We do not intend and undertake no duty to update these statements except as required by law. During this call, we will also discuss non-GAAP financial measures which are not prepared in accordance with generally accepted accounting principles. You can find a reconciliation of the GAAP financial measures to the non-GAAP financial measures in our shareholder letter, which is posted on the investor relations page of our website. I will now turn the call over to Raj to begin. Raj?

Thank you, Charlie, and thank you all for joining us today. I'm going to kick it off with a few high-level remarks, and then I'll pass it to Farhan to cover some of our financials and the outlook. After that, I'm going to make some closing remarks, and then we'll take your questions. Now, as you can see from the recent announcements that we've made, that we've been making, we've been super busy in this quarter. We started the factory acceptance testing, or the FAT as we call it, of our Gen 2 equipment on time. And we have the first equipment landing in Malaysia in November. And we remain in track to go into production April next year with first batteries from that line. Now, a little bit earlier today, we posted a video of Ajay on site at one of our Gen 2 vendors. Please go check out that video. It's very exciting to see the new machines coming online and how everything is going on. Now in parallel, we achieved our strategic objectives in Fab 1 here in Fremont during this quarter, which allowed us to transition from this expensive 24 by 7 manufacturing in Fab 1 to converting it into more of a center of innovation focused on R&D and customer qualifications. This allowed us to shave off 22 million of our annual burn. Now, this quarter, we also completed the acquisition of RouteJet, a company in Korea, which vertically integrates our manufacturing process, from electrode coating all the way to making battery packs. Now, owning our own coating, as I mentioned before, is a highly strategic thing for us. It reduces our capex, increases our margins, enhances our manufacturing capability, speeds up access to the new materials so that we can bring new products to the market much faster. Now, we also gain complementary business from RouteJet, who are shipping products into leading IoT and military customers. This gives us cross-selling opportunities to be able to sell current NOx silicon batteries also into those customer base. We announced that Enervix enabled a product in the market, an FDA-approved portable multi-vital sign monitor. This will be sold in CVS, Walgreens, and Walmart next year. And last but not least, we shipped break-flow-enabled batteries, which is our proprietary technology for keeping batteries safe, to the U.S. Army under contract, which drove this quarter's revenue. Now, before I pass it to Farhan, I'd like to take a few minutes to make some big picture comments on how we are positioning the company to seize this tremendous opportunity in batteries that's in front of us. As I mentioned in my first call as a CEO, it's almost 10 months ago now, that my management philosophy is to really start with the customers, their products, how our products enable their products and move backwards to making great products on our site. This is exactly what has happened during the last many months. We have rebuilt our management team. We have driven much deeper relationships with the key decision makers and customers. And now we understand their unique product requirements. Now, we received consistent feedback from some of the leading smartphone OEMs that the Enovix architecture offers industry's best path to high-density, high-energy-density batteries matched with cycle life and fast charge. All three care about are very important to our customers. If anything, what I noticed over the time I've been the CEO here, is our competitive position in energy density and consumer electronics is actually even better than when I joined the company. I'll talk a little bit more about it in a few minutes. Our relationship with our smartphone OEMs is strengthening, and I've managed to now understand exactly where our competition is and what kind of batteries our customers are currently using. Based on this belief, I believe that Enamics is capable of delivering multiple billions of dollars of revenue with strong margins, similar to the businesses I've been associated with, Qualcomm and Micron, with a superior product that we are going to make here in the portable electronics market, which the market size exceeds over 20 billion. Now, we're also seeing strong interest from the EVOEMs, where the market is much larger than the consumer electronics market. But the question to us, how do we get there most efficiently? And how do we live up to that promise? Now, I first want to today show you a reason why we are so focused on smartphone market. I want to show on this slide what has happened in the smartphone market from 2025 to 2023. Now, I've been involved in this market very intimately from my time at Texas Instruments and Qualcomm and Micron. If you look at 2025, the smartphones had a two-inch TFT display, close to couple hundred megahertz CPU, 3G modem, single megapixel camera, maybe had like a 900 milliamp hours of battery, which was about eight milliliters, if you would say. Now, as you transition to the right, what has happened is the CPUs got much more powerful and there's multiple CPUs now. Now, today in 2023, there's octa-core processors, in multiple gigahertz shipping in these phones. The displays have gone from the two inches to 6.8 inches, HDR10. I'll talk a little bit more about the displays in a minute. multiple cameras, 5G cellular, and you can see the transition along the way. Now, the phones themselves have got increasing capability. You can now take great pictures. You can watch 4K videos. You can do your GPS-based navigation with maps. You can make... purchases and so many other things, which has really helped the smartphone market grow because of these innovations that have been launched with the processing power and the displays and cameras to almost 1,200 million units. Now the battery, what has happened to the battery? During the same period of time, you can see the battery capacity. If you talk about the capacity of battery in milliamp hours, has gone from 900 milliamp hours to almost 5,450 milliamp hours in a few of the very, very high end devices. However, an interesting thing to note is that as the battery milliamp hours grew, the size of the battery also grew, which means this increase in energy has been achieved by making the battery bigger and bigger. so the battery grew seven percent kegger the battery capacity grew 11 but if you actually think of the energy density of the battery which is how much as the capacity grown per liter it's only grown four percent this is clear if you look at the most recent batteries how little increase they got Now why is this a problem? This is a problem because now the increase in energy capacity in smartphones has been achieved by making the batteries bigger and bigger with a modest increase in energy density. The problem is now you can't make the phones any bigger. Because if you make the phones any bigger, they don't quite fit in your pocket anymore. Now we have a problem. How do we continue to increase and supply the demands of these increasing smartphone applications without increasing the size of the battery. Now, if you look at the next slide here, it's going to show you that the emerging use cases haven't stopped. I talked a little bit about the AI and machine learning use cases that are happening at the edge. Talk about multiple displays, larger displays, foldable phones. And if you look at the mixed reality headsets, if you look at All these new applications that are coming, and recently you've seen an announcement from other chip makers and even much higher performance processors and much higher performance memories and better displays. But the battery is not keeping up, and the phone cannot get any bigger. So there is a problem. That's why customers are very interested in working with us at Enovix, because our technology is one of the few ones that can actually enable smartphones to continue that growth curve of this insatiable demand by increasing the energy density. This slide shows you... our battery technology. On the left-most side, I show the average capacity of conventional batteries, which are the graphite batteries of select leading smartphones that are actually shipping in 2023. If we use it as a baseline, our EX1, which is actually the currently shipping product that we have, has over 18% increase in capacity over that. Now, it only goes up to 500 cycles and charges at a standard rate. So it's used in some IoT applications, but not in smartphones. To be able to be used in smartphones, you need to get to 1,000 cycles and be able to charge much faster. Our EX2 has that capability. So we're now in our EX2 technology roadmap. We will be able to increase the capacity by 30 plus percent over the baseline, but actually still continued and also gave the thousand cycles and fast charge. That is super exciting for all the smartphone OEMs because that's an area where people really need this and it changes the game on how smartphones will be used when we get to that. This product is extremely well received by customers and we plan to sample this next year and ramp to high volume production in Malaysia in the millions of units. With the changes we've made, InnoVix is now a vertical business, which means it's focused on a few large customers. where our products are aligned in form, fit, and function to what they need. This contrasts with how our previous strategy at Enovix was we were making a horizontal business primarily focused on standard size batteries to hundreds of customers. The beauty of the vertical first strategy is that the majority of the industry's volume happens to be concentrated in six to 12 large customers, five to six to seven smartphone customers, a few PCOMs, a few wearable customers. So by being successful there, this results in a large business by meeting the demands of these high-volume customers, but our product portfolio can be a lot more focused and our operation expenses can be a lot less and much more targeted in delivering value and performance to markets that need it most. Now we are very well suited for this vertical charity because of the tight customer relationships we have forged over multiple decades. Me, myself and many members in our team have been working with this industry leading OEMs for a long time. We are well positioned in smartphones. That is a market that we are going after really with a lot of intent because of the requirements there. From then, clearly, we will move from smartphones into PCs. Along the way, with the RouteJet acquisition, we'll also continue to sell into the IoT and wearable markets. And I'm confident that with this EX2 type technology, we will be able to launch smartphones in 25, 26 timeframe. And that will help us scale into multiple models of smartphones and PCs in 26, multiple lines with a solid path to profitability. Now with that, I will turn over to Farhan to discuss our financials and give some guidance for next quarter.