Amprius Technologies, Inc.

Good afternoon and welcome to Amperius Technology's second quarter 2023 earnings conference call. Joining us for today's presentation are the company's CEO, Dr. Kang Sun, and CFO, Sandra Wallace. At this time, all participants are in listen-only mode. Following management's remarks, we will open the call for questions. Please note that this presentation contains forward-looking statements, including but not limited to statements regarding future product commercialization, new customer adoption, and timing and ability of Amperius to build its large-scale manufacturing facility, expand its manufacturing capacity, scale its business, and achieve a sustainable cost structure. These statements involve known and unknown risks, uncertainties, and other important factors that may cause Amperius' results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied in such forward-looking statements. For a more complete discussion of these risks and uncertainties, please refer to Amperius' filings, with the Securities and Exchange Commission. Finally, I would like to remind everyone that this conference call is being webcast and a recording will be made available for replay on the company's investor relations website at ir.ampreus.com. In addition to the webcast, the company has posted the shareholder letter that accompanies these results, which can also be found on the investor relations website. I will now turn the call over to Ampreus Technologies CEO, Dr. Kang Sun for his comments. Sir, please proceed.

Welcome everyone. And thank you for joining us this afternoon. On today's call, I will report on our process and accomplishments at MPS in the second quarter. And our CFO, Sandra Wallach, will discuss our financial results for the period. After that, I will share some closing remarks before opening the call for questions. Our second quarter demonstrated our business momentum and growth potential. Amperes introduced new products and technologies brought in more customers and delivered increased revenue. Our battery performance continues to command a firm leading position in the industry. Highlight the Amperes ability to provide 450 Wh per kilo specific energy density and 1150 Wh per liter volumetric energy density up to 10 C power capability. The extreme fat charge rate of 0% to 80% stay of the charge in approximately six minutes. The wider operating temperature range of minus 30 degrees Celsius up to 55 degrees Celsius. And the safety design feature that enable us to pass the United States military's benchmark and nail penetration test. EMPIS has over 80 patents and extensive know-how in silicon anode and silicon anode manufacturing technologies. And I would believe that there are no other commercial batteries on the market that can perform at these levels. EMPIS has been in commercial battery production since 2018. So company has many years of experience manufacturing high energy density and high power density lithium-ion batteries. Our priority today is to scale our manufacturing capacity to meet every increasing demand of our solutions with the long-term goal of becoming a mainstream battery solution with applications across all segments of electrical mobility, including the aviation and the EV industries. Building our momentum from last quarter, we are diligently working to execute the strategy we lay out earlier this year. This quarter, we continue to develop new products, build out our bulk of customers, and progress our path to larger scale commercialization. I would now like to note a few highlights in each area. Beginning with our technological development, our second quarter includes a few key examples of our ongoing efforts to push the boundaries of what is possible in the high-performance battery space. First, early this month, we announced our newest product, the Amperes high-power, high-energy battery cell. This cell displays unprecedented performance in the industry, delivering 400-watt-per-kilo energy density and the maximum power density of 4,400-watt-per-kilo, with an impressive 10C continuous charge rate. EMPI's high-power cell technology is critically important to the electrical aviation industry, enabling the capabilities of EVTOS and other high-performance electrical vehicles. We believe that we are close to shipping samples to interest partners and that we will be able to commercially ship this product in early 2024. Second, our silicon annual batteries recently powered BAE Systems' first successful its partner for its high-attitude super-satellite uncrewed aerial system demonstrate that they believe it is important to use the ultralight battery that also offers the necessary power to fly the aircraft. The HIAPS program opens extensive possibilities of future communication networks including 4G and 5G. It is a versatile application from disaster relief to border protection, present a compelling alternative to conventional airborne and satellite systems. And the MPA is excited to play a part in the future. Third, we complete the US Army Safe Cell Development Program, an important technical milestone to our business with the US Army we successfully delivered our 391-hour-per-kilo safe cells with a gel polymer electrolyte, passing the vigorous military performance specification nail penetration test. When integrated into a battery pack, this cutting-edge technology more than doubles the energy density of existing solutions, significantly extending mission time Also, as a part of the U.S. Army-funded manufacturing technology program, we are working closely with one of our partners to deliver conformal variable batteries to U.S. Army before the end of the year. We believe that this is the important stepping stone to further developing our relationship with the U.S. military and the specifically giving us entry points to the conformal variable as we market estimate at 1.25 building by 2030. Finally, we have become an integral partner to several teams participating in the Breeze Stone World Solar Challenge in October. For the event, each team designs, develops, and pilots a solar-powered vehicle along a 3,000-kilometer Transatlantic Australia route. Ampere's battery's superior performance attracts significant attention for teams entering the development process, and four teams chose Ampere's battery to power their solar race cars. The high energy density and the high power density capability of our battery are critical for this application. These are just a few of the ways Amperes is changing the battery landscape. We are constantly evolving our products to push up our industry boundaries and meet our customer performance goals. Turning to our business development efforts, we continued to see significant demand for our products in the second quarter. We shifted to 27 total customers this quarter, up from 16 in last year's second quarter and up from 19 in the first quarter of this year. These customer relationships extended beyond technical engagements and are with customers we have placed product orders with Amperes. This includes repeat customers like Airbus, AeroEnvironment, and the Teledansler, who continue to show their support and demand for Amperes batteries with additional orders and the commercial shipments. We shipped to 10 new customers in the quarter as well, which indicates growing industrial recognition and the validation of our products. In addition, our pipeline of the potential customers remains strong. Two key ways that we bolster our pipeline are through the strategic technical engagements and the prototype achievements. In the second quarter, we not only Through significant progress in our ongoing technical engagements, we also start new technical engagements with the leading high-performance automotive OEM. This engagement is expected to be part of the joint development contract we are finalizing with the manufacturer. Once finalized, we believe that this engagement will offer us another encouraging opportunity in the automotive space. As for prototype shipments, this quarter we made a site visit to two battery pet manufacturers to whom we started shipping samples in the fourth quarter of last year. We believe that this visit serves as meaningful steps toward a significant potential demand from the aviation industry through 2025 and beyond. In addition to driving demand for our batteries, it remains a priority for our business to expand our production capacity to meet this demand. We believe that this is a critical part of our strategy, both in short term as we work to expand our MPs Lab in Fremont, California and over the medium and the long term as we strive to achieve gigawatt scale manufacturing with MPs Lab in Brighton, Colorado. MPs Lab will allow us to increase our production capacity to 10 times what it is today by year end. providing enough capacity to both expand commercial shipments within our strategic accounts, as well as ship samples to our pipeline of potential customers. Our expanded Fremont production facility is designed to have a full lithium-ion battery manufacturing capabilities, including both anode and cathode production, as well as the ultimate cell assembly enabling us to further develop a capital technology and the cell chemistry in-house. In the second quarter, we ordered the necessary equipment to begin executing our MTS lab retrofit and expansion. a process that we are on track to complete at the end of the year in hopes of having facility up and running entering 2024. We are also working diligently to meeting our project plan for MPFED, our growth engine, which will allow us to reach high volume manufacturing capacity As a reminder, our planned 774,000 square foot largest scale production facility is a part of the total site with over 1.3 square feet available for expansion. Expect to be the first mass production site for the next generation battery technology in the United States. The initial phase of our build-out will provide the potential of up to 5 gigawatt hour with expansion capability for up to total potential manufacturing capacity of 10 gigawatt hour. The MPFET site is already equipped with the electrical power and the existing structural layout needed for gigawatt scale lithium-ion battery factory. which will reduce our build-out cost and the time to market. We are now working through the rezoning and the site permitting processes, and I believe we are on schedule to begin construction on Amherst Fab later in the third quarter as part of our 18 to 24-month plan. Our goal is to be operational in 2025, and as of this call, we remain on track to meet this timeline. This quarter, our engineering team worked with the Central CERN team in Germany to complete the necessary silicon nanowire annual mass production equipment process testing and optimization efforts. The process, once optimized, will be deployed at Ampes Labs manufacturing line and ultimately at Ampes FED. Both Amperes Lab and Amperes Set will have high-performance Amperes silicon and battery manufacturing capabilities. I have one final update before I turn the call over to Sandra. We recently appointed Mary Kostanski as the independent director to our board of directors and our compensation committee. Mary is the very first in various challenges and opportunities in our industry and offers a unique and valued perspective to our board. We are confident that our extensive automotive sector and the technical management experience will help us as we navigate and expand into new markets. With that overview complete, I will now turn the call over to our CFO, Sandra Wodick, to review our financial results for the quarter. Thank you.

Thank you, Kang. I would now like to spend a few minutes covering some key financial updates. As a reminder, our detailed financials can be found in our shareholder letter. We finished the second quarter with $1.6 million in revenue. a 0.9 million increase compared to 0.7 million in the same quarter last year. There were two main drivers of this increase. First, we drove a 0.6 million increase in product revenue. As Kang mentioned, our product revenue was largely driven by shipments to 27 customers this quarter, a quarterly record for Amprius. Also, of these customers, five customers represented greater than 10% of revenue as compared to three such customers last quarter, and two such customers in last year's Q2. Even though our product revenue remains largely driven by customer purchase orders that can arrive at uneven times throughout the year, we have shown consistent new customer growth and diversification in recent quarters. Second, our development services revenue totaled $0.3 million, a reflection of the Army safe-sell delivery we completed in the quarter. As noted in previous quarters, our development services revenue is intermittent based on revenue recognition timing. And as our capacity expands and more customers transition to commercial orders, we expect this revenue category to continue to decline as a percentage of overall revenue as we begin to process larger orders from a broader customer set and as our product revenue ramps even more. Our government grant revenue was flat year over year for the quarter. Moving to our profitability metrics, our GAAP gross margin was negative 186% in the second quarter, in line with our Q2-22 gross margin of negative 197%, and better than our Q1-23 gross margin of negative 518%, which was primarily impacted by non-recurring startup charges for our large-scale manufacturing facility. As the build-out continues and construction begins in earnest, we expect these scale-up related charges to increase. Still, we are confident that our GAAP gross margin will begin to normalize as we approach our capacity expansion goals in the coming years. Now onto our operating expense management. Our GAAP operating expenses for the second quarter increased to $7.1 million, largely due to increased public company costs and additional targeted investments in R&D staffing. Our gap net loss for the second quarter of 2023 was 9.4 million, or a net loss of 11 cents per share. As of June 30, 2023, we had 86 million shares outstanding. Also, as of June 30, 2023, there were 72 full-time employees with those employees primarily based in our Fremont, California location. Our share-based compensation for the quarter was $0.9 million. Now turning to the balance sheet, we exited the second quarter with $65 million in cash, up $0.8 million from the last quarter, and no debt. One of the key drivers of our cash activity for the quarter was $5.6 million used in operating activities. As discussed previously, Our run rate for cash used in operating activities remains projected to be around $2 million per month, excluding audit and transaction-related expenses. Other drivers include $1.7 million in build-out-related investments in the expansion of our Amperius Lab facility in Fremont, and $8.1 million in financing cash inflow from accessing our committed equity facility to fund our capacity expansion and operating cash requirements. Considering our business achievements and ongoing projects, we believe we are efficiently using capital to drive AMPRIUS forward. Before I turn the call back over to King, I would like to take a moment to discuss our outlook. As mentioned last quarter, we have several ongoing development services programs with performance obligations that we expect to complete within 2023, which means we should see increased revenue recognition, weighted more heavily towards the latter part of the year. Also, we anticipate that our G and A costs will continue at the higher rate we experienced earlier this year when accounting for additional public company and transaction related expenses. Also, we continue to expect to be capacity constrained until we exit 2023 when our new two megawatt hour capacity is projected to come online. That project, along with our build-out of Amprius Fab in Brighton, Colorado, remain our top capital allocation priorities. We believe that we are on track with our prior CapEx projections, which are that we expect to spend approximately 10 to 12 million completing the build-out of the Amprius Lab facility in Fremont by the end of the year, as well as 50 to 80 million in the second half of this year as we start construction at Amprius Fab and begin to order long lead time equipment. We expect to confirm the facility design and scale, as well as provide a projected budget during the second half of this year. Our spending pattern is dependent upon several factors outside of our control, including the timing of rezoning approval for the Colorado site, so we expect to provide more specific projections as we have additional information to share. Overall, with the strength of our balance sheet and multiple vehicles to generate additional funding through both equity issuances, such as warrants and sales under our committed equity facility, and non-diluted sources, such as grants, loans, and incentives, we believe we will have enough cash to execute on our strategic plan. With that, I will conclude the financial discussion and pass the call back to Cain.

Thanks, Sandra. I'd like to re-emphasize a few key points before closing. First, Amperes silicon annual technology continues to demonstrate unmatched performance in the industry. Amperes batteries command a firm lead in safety, energy, power, charging time, temperature performance, and are uniquely positioned for the electrical mobility market. Amplified batteries are commercially available today. We have been shipping commercial products since 2018, and our technological advancement continues to bring significant customer demand. This quarter, we not only delivered repeated customers and expanded our technical engagements, we added 10 new customers as well. Our demand pipeline is robust, and we look forward to further building out our customer book in the coming quarters. Third, we are scaling our manufacturing capacity to serve the significant demand ahead. Exiting 2023, we will further pull out our largest scale manufacturing process and the parameters with our two megawatt-hour production line at Ampes Lab in Fremont. We also remain on track to build out and preset our gigawatt scale facility in Brighton, Colorado, which we expect to be operational entering 2025. Finally, we are looking forward to several exciting milestones over the rest of the 2023 before end of the year. Secure customer commitments to fulfill MPS FAB's expected production capacity for 2025. Deliver 500 Wh per kilo battery prototypes to select the customers. Complete our megawatt-hour scale silicon-annual battery manufacturing facility at MPS Lab and start MPS FAB construction and complete our product line and facility equipment purchases. As we look to the rest of the year, our strategy and the focus at Amperes remains unchanged. We have a tremendous opportunity ahead with a product portfolio that positions us to both growth in aviation market and expanded to other industries, picking battery with leading performance. Opportunities in front of Amperes are enormous. including the 1.25 fueling conformal variable battery market by 2030, the 49 fueling aviation market by 2025, and the 67 EV battery market by 2025, all of which EMPIS goes past in coming years. 2023 has been a very productive year for companies thus far. Our solid performance in this quarter has demonstrated our team's ability to deliver what we have planned and promised. Thank you for your continued support of Ampere's technologies. With that, I will turn it back to the operator for Q&A.

Thank you. At this time, we'll open the line for questions. The company requests that each participant limit themselves to one question and one follow-up. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using sleeper equipment, it may be necessary to pick up your handset before pressing the star key. Our first question is from Colin Rush with Oppenheimer. Please proceed with your question.

Thanks so much. You know, Dan, can you talk a little bit about where you're at from a testing perspective around the subsystems for the megawatt scale tool and when you expect to really kind of just flip the switch and start running that full app?

You know, Colin, we have a test I assume you are talking about the Fremont operation here. So at Fremont, we already finished almost the full test in Germany at Central CERN, who are our supplier for silicon anode deposition tool. So we expect to transfer that, to move that entire piece to Fremont. So by the end of the year, we will have that part of the equipment in place. So that's the key part of this entire manufacturing process. If we get that right, the rest of those are relatively easy.

Excellent. And then with the customers, obviously adding incremental 10 customers is an awful lot for the company at this point. Can you talk a little bit about you know, what percentage of that are customers who are sampling and how many of those are folks that are taking commercial product at this point for particular applications?

So we, as a new customer, I think proximity in terms of persons, they all have processing orders for different purposes. Some for sampling, prototyping, some are really qualified applications. our product. So I would say 40% of those customers really qualified our product and started purchasing for their commercial applications.

That's incredibly helpful. And then one for Sandra, just in terms of the cadence of the cash flow for the balance of the year, how would you characterize the spend in terms of how much is going towards equipment orders, how much is going towards facilitation? And, you know, how much is going in the third quarter versus fourth quarter?

So we're going to keep our operating activities relatively flat as far as use of cash. We've got about 10 to 12 million more to finish out Fremont, and we're projecting somewhere between, and this is all dependent on timing, but the Demand for the construction and the pre-ordering of the long lead time items is estimated to be on the low end, $50 million, on the high end, $80 million for Colorado. Excellent.

Appreciate it. Thanks so much, guys.

Thank you. Our next question is from Chris Souther with B. Reilly Securities. Please proceed with your question.

Hey, guys. Thanks for taking my questions. Maybe just on the performance automotive, can you give us a sense of the timelines you should expect for updates there, and can you share what you hope the goals of the joint development contract will potentially lay out? And I'm just kind of curious from a high-level standpoint, do you think this changes your potential timeline for commercialization in the automotive sector, or should we kind of temper the enthusiasm around that? in the near term, mid term?

We already engaged with this customer for some time. Now we would like to formalize the relationship, which step one would be joining the development program. This is very significant for us. This is a high performance electrical vehicle manufacturer. So it's going to guide us into this business. So we expect we'll finalize this agreement in next month or so.

Okay. And then maybe just on the battery pack manufacturing, relationships that you called out in the letter and earlier on the call. Can you talk a bit about how that fits into the overall customer strategy? Do the larger customers you've talked about, like Airbus, Teledyne, Clear, have kind of in-house pack manufacturing, or is it around kind of standardized sales for specific applications for smaller customers? Can you just kind of talk through what those relationships mean?

The AMVIS lab in Fremont will have 10 times more capacity than what we have today. That's very, very significant. In addition to that, we will have this large tool in place. This is going to improve our battery performance as well because we have better uniformity, we have better control of our annual manufacturing here. At this time, we still customize our batteries, each design for specific customers, for major customers. For the smaller customer, of course, they take what we have here. Ultimately, not only we want to standardize the battery cell, the industry is moving to that direction as well.

Okay, on the PAC side, though, you called out visiting two PAC manufacturers. As you're starting to standardize the thousands, is it more standardized PAC that you'd expect as well?

Yeah, Chris, we have two types of customers. One type of customer is OEM, for example, Airbus. We work with them directly. Since we are a battery cell manufacturer, so we rely on the our customer rely on the pack company or the module company to put the sale together and make a module and a pack for their commercial application. So the pack companies are very important customer of Ampere's technologies as well. So those two customers we visited are the leaders in this business. We already have a standardized module to supply to the industry. The main purpose of visitors is to discuss long-term working relationship supply agreements from now to 2025 and beyond. This is very important because we have 500 megawatt facilities is under construction. By the time we finish, Okay, we need to have full capacity operation. This was the purpose of this visit. You know, we have very good relationship with the customers at this time. That's good to hear.

I'll hop in the queue. Thanks, guys.

Thank you. Our next question is from Tim Moore with CF. Please proceed with your question.

Thanks. And your shareholder letter commentaries Today was insightful. I've got two questions here. Your commercial success is quite evident with 27 total customers shipped this quarter up from 16 a year ago and 19 in the March quarter. As I think out to your capacity and that plan for the year 2025, how do you prioritize the production for specific customer proposals that come across your desk? I mean, clearly the U.S. Army Safe Cell Development has been in the works Just two summers ago, you know, the BAC Systems Stratospheric Flight Batteries were nice headline accolades. But can you maybe share and rank maybe how you handle the incoming opportunities and prioritize them? Is it, you know, is it this year you're trying to demonstrate a wider range of applications for your offerings, like solar and flight and Army? Or is it really more based on something like sales potential three years out from a single customized customer?

Yeah, Tim, serve our existing customers certainly is our priority. Those customers show the loyalty to us. For example, Airbus, we have been working with them since 2018. So existing customers certainly is our priority. They have priority on the capacity allocation. But we have a lot of inquiries from the market. That's the reason we built a new capacity. The Fremont capacity could be 10 times more production capacity than what we have today. This is very, very helpful for us to develop new customers.

That's helpful. I mean, your company clearly has a lot of great advantages beyond just power density and fast charge time and your healthy balance sheet. Obviously, you're not solely a developer, but you're actually doing manufacturing with farm orders and production in-house. Do you, you know, as you kind of approach new customers and new prospects, are you seeing anything in particular that you can point to that's maybe helping you win orders better? Is it the extreme fast charge, you know, the zero to 80% data charge in six minutes? Or is it really the power density? Is one thing over another really kind of the icing on the cake to win orders?

Team 4 MPIUS today is focusing on aviation markets. For aviation markets, three top priorities, safety, energy, and the power. They cannot miss any one of those because the safety is absolutely important for aviation. Our company in the leadership position for safety, we passed the United States Army military stack for safety. Secondly, the energy is very important because this dictates how far they can fly. This is very, very important for them. Otherwise, they don't have any commercial value if they cannot fly far enough. The third one is the power. They need to have power to lift off and then land. This is the reason the NPS has a lot of customer inquiries because if you look at the market, There is almost no battery chemistry today can deliver what we have here. In addition to safety and have very little compromise between the power and energy. As our news release published a few days ago, we have a 400 watt per kilo battery can deliver 10 C power capabilities.

Great, King. That's very helpful. I'll save my questions for offline later. Thanks. Thanks.

Thank you. Our next question is from Abby with Northland Financial. Please proceed with your question.

Yeah, hi. Thanks for taking my question. So just on the customers, I just want to press on more on that. If you could talk about the process of acquiring a new customer, like what does it take in terms of the process and the timeline? before you get an order? And more importantly, if you could talk about the feedback that you get from the customers from whom you are not able to get the order, like what do they have to say?

Okay. First, let's talk about what do they want in terms of product specs. Our customer, basically, as I mentioned earlier to Tim, three things, okay, safety, energy, and the power. Now, with all of those three performance parameters meet their spec, and there is no discussion. So those are very, very important parameters we need to deliver. Now, in addition to that, the customer, we don't get an order. Normally, it's a capacity issue. This is why the MPS has been focusing on the capacity expansion about 12, 18 months ago. That's our primary focus. The customer will not engage with us if we cannot guarantee we can support their growth, for example, in the next 24 months at least. The customer I visited in Europe and in the United States recently, they basically asked us to guarantee until 2026. They want to see if there is a roadmap to the capacity expansion before they pre-sold it.

Thank you. That's helpful. So just on that, when you go to a new customer, when you provide a demo or something, how long does it take for them to approve or to place an order?

It varies. Some customers take about seven, eight months to be done because they take our standard product, they take a test, they see other people use it. So it's relatively easy. But for the new program, start from the scratch, they have a different technical spec to meet. That usually takes a year and a half. Definitely in aviation, it's much shorter than the electrical vehicle. At this time, in the future, the lead time may be longer because at this moment, the most customers we are working with are unmanned. flying devices, like super-satellite drones. Once we get a passenger-carrying vehicle, the time of development will take longer. When we say the development time, this is two parts. One part is our battery development. Another part is our customers' own product development.

All right, thank you very much, sir.

At this time, this concludes our question and answer session. If you have any additional questions, you may contact the AMPRIUS investor relations team at ir.amprius.com. I'd now like to turn the call back over to Dr. Sun for any closing remarks.

Thanks again, everyone, for joining us today. I also like to thank our employees, partners, and the shareholders for their continued support. As a reminder, you may learn more about our company from the additional updates and learn about the upcoming events and the presentations from the Investor Relations section of our website. We look forward to updating you on Unplaced's progress on our next call.

Thank you for joining us today for AMPRIUS Technologies' second quarter 2023 earnings conference call. You may now disconnect.