Enovix Corporation

Thank you for standing by and welcome to the Novix Corporation's first quarter 2024 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 first quarter 2024 financial results conference call with us today our president and chief executive officer dr raj taluri chief financial officer farhan ahmad and chief operating officer ajay marathe rajan 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 first quarter 2024 shareholder letter after the market closed today It's available on our website at ir.novix.com. A replay of this 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, May 1st, 2024, based on information currently available to us. We can give no assurance that these statements will prove to be correct, and we none intend and undertake no duty to update these statements except as required by law. During this call, we'll also discuss non-YEP 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 in the Investor Relations page of our website. I'll now turn the call over to Raj to begin. Raj?

Thank you, Charlie, and thank you to everyone joining us today. For our format today, I'm gonna start with a recap of our recent results, how we are progressing against our strategy before I turn it over to Farhan for the financials and the outlook. I'll also have a few closing comments and then we'll take your questions. We're off to a great start in 2024. To recap our recent achievements, first, we delivered a Q1 revenue of $5.3 million, which was above our forecast due to strong performance from the IoT category. And thanks to the higher revenue and favorable product mix, we reported positive non-GAAP gross margins for the first time in the company's history. Second, We completed the factory acceptance testing of our Gen2 Agility line, and the vast majority of the machines are already in Malaysia, and the SAT is well underway, which is the site acceptance test. As a result, we are on track to produce our first battery samples of the EX1M technology this quarter. Now, I'll also note that the FAT for the high volume, the Gen 2 Auto line, is nearly complete. And given that it's based on the exact same process kernels as the Agility line, for the unique and challenging portions of our battery manufacturing process, such as laser dicing and stacking, our yields are already at upwards of 95% in our Gen 2 machines. Big picture, manufacturing is in a great place. We are confident we can scale the Gen 2 process given the amount of rigor we put into getting these qualification steps right. Now let's talk about the customer progress. Let's start with smartphones, the largest portion of the battery market in consumer electronics. We are deeply engaged with market leaders given the value they see in our architecture to enable silicon and increase the battery performance. As we talked about previously, our process has been to work with these OEMs to gather the specific requirements for the smartphone market, and then develop a product that's tailored to the needs of this market. This is exactly what we've done with the EX1M. And I'm thrilled to update you that we have now begun producing samples of EX1M in Fremont for the initial testing, which you can see on the cover of our shareholder letter. It's super exciting for us. Now the samples of EX1M will go out shortly and the customers are really eager to kick off the qualification products of these samples with their products in mind for 2025 launch. What does this mean and where are we with these customers? Now let's take a quick look with this slide. Now what I'm showing on this slide is basically the size of the smartphone business opportunity for us. The smartphone battery leadership opens a $12 billion opportunity for Enamics. If you look at the top bar on the slide, you can see all the OEMs that ship around 1.2 billion smartphones in 2023. The top eight of them represent a billion units, which is 80% of the volume. Now, of the 12 billion lithium ion battery TAM in smartphones, 9.5 billion is among these top eight. Collectively, they produced 280 plus models of smartphones, which means an average smartphone unit volume of, you know, three and a half million units per model. So three or four models of this will take a full line of ours. Now, six of the top eight of these OEMs are going to receive samples from the EX1M smartphone battery from us. So that $7.5 billion of smartphone battery dam is actually represented here. So we're in great shape, as you can see, with the market leaders. Something that was a priority for me when I joined the company last year to focus on the largest part of the battery market. Now the customer interest has extended to conversations with OEMs about formalizing our relationship with them as we started making progress over the course of the last year. Some have expressed desire to be the first to market with products in 2025 and beyond. To that end, I am really pleased today to announce our first development agreement with the top five smartphone OEM by volume. What this agreement reflects is a progression of our technology relationship with this company and a mutual plan from both the company and us to bring out our technology into user's hands. Very exciting development that has happened in the last quarter. And we see similar interest and collaboration from other customers who are also sampling to who we are going to sample with our ES-1M technology in the coming months. Our goal is very straightforward. We begin with a handful of SKUs from this group of customers, ramp EX1M to production in 25, then further differentiate with our EX2M, a battery that samples later in this year for product launches in 26. As I have highlighted in the past, there is secular demand for increased battery capacity with every smartphone generation. And InnoVics may be the only company that can help these leading companies, leading smartphone OEMs, keep up with the demand for the higher and higher energy density needs of the batteries because of all the AI applications that are coming into the smartphone, particularly for all the on-device AI applications. So let's recap what products we plan to bring to the market on the next slide. We've shown this slide to you before. EX1 is our current technology that we were sampling last year. EX1M is a new technology that we will be sampling the second quarter of this year. And this technology is comparable on energy density to EX1M, which is quite a bit differentiated from all the cell shipping out there in the market. But we've made a few important advancements to this battery. We've increased our cycle life. We increased our capability to charge fast, both of which are very important in cell phone market. now we plan to sample ex2m which is the generation after this where we continue to make improvements on energy density and cycle life and fast charge capability our r d teams have already started working on ex3m where we will further make improvements over ex2m in all these three vectors energy density faster charge and so on and we our plan is to sample them in 2025 Once we bring a leading smartphone battery to market, our view is that this gives us the entitlement to win in other large parts of the battery market, namely IoT and computing. There is another $12 billion of TAM in those two markets. The reason for this is a smartphone battery has the highest bar of all consumer batteries. The demands of on-device AI are very high, so it needs higher energy density, higher cycle life, people like to keep the smartphone for a while, fast charge rate, they like to charge it quickly and move on. Highest levels of safety, it's a device you carry with you on the time. So when we produce a battery that meets these requirements, all the other markets are entitlements for us. This is actually something, same thing I saw at Qualcomm. When I was at Qualcomm, we built a significant mobile phone business, but very quickly we were able to sell the Snapdragon into IoT businesses after that. Now it should also be not lost on anyone. The logos you saw in the previous slide of the smartphone OEMs are the same logos of some of these customers who are actually leading in some of the IoT markets like wearables and tablets and computers. So proof positive for strategy is once we qualify with the smartphone customer takes our ES1M sample, they're not only qualifying us for smartphones, but also for smartwatches and so on. To this point, we are continuing to make inroads into multiple other IoT customers. We are applying our vertical markets philosophy where we selectively engage with a few high volume opportunities with leading OEMs that are products that take advantage of the higher energy density and better battery performance of EX1M and EX2M. Presently, our commercial team is focused on select IoT design opportunities for both 1M and 2M, with product launches targeted in 25 and 26 for high energy and batteries. So some really meaningful progress here. Now, as we look forward, we're approaching some key milestones this quarter. As production begins in Fab 2, and we get samples of our EX1M going out to the customers. Now let's take a look at our scale-up strategy. We've shown this slide before. Q224 is when we are going to be sampling our first EX1M batteries from our Agility line to some of the smartphone customers and also some IoT customers. Second half of 24 is when our FAB2 will get ready for production. And Q4 of 24, we expect to sample the EX2M, the next generation of the battery. Now that takes more, you know, people take some more time to qualify that, and we expect that to launch to production in 26. In 2025, our goal is to launch multiple smartphones and also IoT customers with our EX1M battery. Now, what does scale look like when we get to launching multiple products with multiple customers in the coming years? This is a slide that we haven't shown before. This is a slide about the smartphone production line unit economics. Our manufacturing R&D team has been very busy at work to reduce the cost of our lines. Now we are targeting the CapExport line to be in the $60 million range in the out years. And we've also targeting now with the experiments we've done to be able to get the throughput to be 1,650 units per hour. What that does is each line has the capability of producing a revenue of $150 million. What we're finding is that as we produce higher and higher energy density batteries with better performance, there is the opportunity to increase the ASP because the customers want a higher energy density battery because that'll help them differentiate the products much better. At that point, we expect our cash gross margin to be in the 50% plus, and we estimate the payback of each of these lines to be one year. So very exciting future here as we get into scale of manufacturing. As you can see, they're making tremendous progress and we have a very clear path and a very attractive long-term financials as we scale this business. Now, none of this would be possible without the collective success of our global teams. From the operations team in Malaysia readying our FAB2, to the team in India reducing our R&D cycle times, to the team in Korea improving our coating capability. Based on this progress and taking advantage of our global footprint, we are now accelerating our plans to identify additional efficiencies as we scale to take advantage of this global footprint of our engineering teams and manufacturing teams. Our plan is now to reduce our fixed costs by more than a third are by more than $35 million annualized by this year end. This significantly reduces our capital needs and accelerates our path to profitability. With that, I'm going to turn it over to Farhan.