Enovix Company (NASDAQ:ENVX) Q2 2022 Earnings Convention Name August 10, 2022 5:00 PM ET

Firm Individuals

Charles Anderson – SVP, IR

Harrold Rust – President, CEO and Co–Founder

Steffen Pietzke – CFO

Cameron Dales – Basic Supervisor & Chief Business Officer

Ashok Lahiri – Chief Technical Officer & Co-Founder

Convention Name Individuals

Gabe Daoud – Cowen Inc.

Invoice Peterson – JPMorgan

Colin Rusch – Oppenheimer

Gus Richard – Northland Securities, Inc.

Anthony Stoss – Craig Hallum

Ananda Baruah – Loop Capital

Marc Cohodes – Alder Lane Farm

Operator

Thanks for standing by and welcome to Enovix Company Second Quarter 2022 Earnings Convention Name. At present, all members are in a listen-only mode. After the speaker’s presentation, there shall be a question-and-answer session. As a reminder, at the moment’s convention shall be recorded.

And now I might wish to introduce your host for at the moment’s program. Charles Anderson, Senior Vice President of Investor Relations. Please go forward, Sir.

Charles Anderson

Thanks. Whats up everybody and welcome to Enovix Company ‘s second quarter 2022 monetary outcomes convention name. With us at the moment are President, Chief Government Officer, and Co–Founder, Harrold Rust, and Chief Monetary Officer, Steffen Pietzke. We may also be joined at the moment by Chief Business Officer, Cam Dales, and Chief Expertise Officer and Co–Founder, Ashok Lahiri for the Q&A portion of our name. Harrold and Steffen will evaluate the working and monetary highlights, after which we’ll take your questions. After the Q&A session, we’ll conclude the decision.

Earlier than we proceed, let me kindly remind you that we launched our second quarter 2022 shareholder letter after the market closed at the moment. It is out there on our web site at ir.enovix.com. A replay of this convention name shall be out there later at the moment on the Investor Relations web page of our web site. Please word that the shareholder letter, press launch, and this convention name all comprise forward-looking statements that are topic to dangers and uncertainties. These forward-looking statements are based mostly on present expectations and should differ materially from precise future occasions or outcomes as a result of a wide range of components.

For a dialogue of things that might have an effect on our future monetary outcomes and enterprise, please check with the disclosure in at the moment’s shareholder letter and our filings with the Securities and Trade Fee. All our statements are made as of at the moment, August 10, 2022, based mostly on the knowledge at the moment out there to us. We may give no assurance that these statements will show to be right and we don’t intend and undertake no responsibility to replace these statements besides as required by legislation.

Throughout this name, we may also talk about non-GAAP monetary measures, which aren’t ready in accordance with Typically Accepted Accounting Rules. You could find a reconciliation of the GAAP monetary measures to non-GAAP monetary measures in our shareholder letter, which is posted on the Investor Relations web page of our web site.

I’ll now flip the decision over to Harrold to start. Harrold?

Harrold Rust

Thanks, Charlie. The second quarter was an important quarter for Enovix and a serious milestone in our evolution as an organization. I need to begin at the moment by going again to the start. Once we began Enovix in 2007, we did so the assumption that there should be a greater strategy to make the fashionable battery, one which superior structure over supplies. On paper, we felt we are able to enhance power density by as a lot as 100% and ship one of the best product in an business that may have huge strategic significance.

We knew we had the individuals that might pull it off from prior firms the place the structure of our product was our core competency, however we additionally knew it would not be straightforward to alter the basics of how one thing had been made for over 50 years.

Within the spring of 2020, we began ordering the tools for our first manufacturing line and gutted the constructing I am sitting in to organize for the manufacturing of our battery. A couple of months later, COVID introduced the world to a cease. We may have used that as an excuse for failure. We did not. We simply found out how one can get the job achieved pulling down one problem at a time. Resilience was one of many core values of our individuals.

In February, 2021, after we introduced plans to turn into a publicly traded firm, we set an bold purpose to carry up and qualify our [indiscernible] eye battery manufacturing line within the US at what we name Fab-1 after which to ship our first business merchandise and acknowledge product income within the second quarter of this yr.

Right now, I am happy to report that we achieved that purpose and have since delivered batteries Fab-1 from a number of prospects and distributors. It seems that we had been proper about batteries changing into strategically necessary. Business leaders have taken word of Enovix shifting into manufacturing with a revolutionary product and have turn into more and more aggressive in shifting ahead.

Particularly within the second quarter, we accomplished tech calls with three mega cap know-how firms, which we check with as strategic accounts. Two of those are the identical firms that informed us we’ve got one of the best superior battery they’ve examined and the third informed us their purpose is to maneuver our know-how throughout our product portfolio shortly. And everyone knows that on this enterprise, one of the best product wins.

On high of that, we accomplished the preliminary phases of our product growth program within the second quarter with a fourth strategic account after transport business gross sales from Fab-1 and acknowledge $5 million in income from this buyer.

Equally necessary strategically is the US Military who has a vital want for prime power batteries manufactured within the US. I am proud to announce that we obtained a follow-on analysis contract within the second quarter to construct and take a look at customized cells for wearable battery packs, US Military troopers carry into the sector. This chance may be very giant. Our estimate is that the overall US wearable navy battery market is roughly $350 million yearly based mostly on at the moment established navy applications.

We imagine our battery can ship appreciable operational benefits for our troopers whereas on the identical time offering resiliency of home requirement. Whereas we proceed to work on shifting prospects by way of our funnel in direction of orders, we’re centered on enhancing the output of our manufacturing unit to fulfill future demand. We made strong enchancment in output and yield through the quarter, however we have to improve our manufacturing yield metrics.

There isn’t any straightforward path when citing a primary of a sort manufacturing line. It’s a relentless effort of steady enhancements. I am an operations particular person at coronary heart. I’ve ramped a number of excessive quantity factories in my profession, and I am tremendous assured we’ll get the job achieved.

We’re prioritizing Fab-1 enhancements within the third quarter. This consists of taking the road down for parts of the quarter to enhance particular person course of modules and set up plan battery conveyance. Our purpose is to do the wanted work in Q3 to place us for the beginning of our manufacturing ramp to shut the yr.

We’re placing all this studying into our Gen2 manufacturing line design. Main parts of Gen2 are designed to be half the footprint of Gen1 with elevated output. We had hoped to have completed our Gen2 ordering in Q2, however we prolonged the design actions to include all the newest learnings from Fab-1, in addition to our break move know-how. We now anticipate Gen-2 to be put in in Fab-2 within the second half of 2023. As beforehand mentioned, we anticipate to have each a home and an Asian cloth location within the subsequent a number of years.

I additionally need to reemphasize that we’ve got a number of paths to develop the corporate, together with capital mild choices, reminiscent of JV or licensing. That is the probably path for the electrical automobiles market and it could even be a viable path to help the capability necessities of our roster of strategic decide down.

Now let me flip the decision over to Steffen who will talk about our financials and after that, I will make some closing remarks.

Steffen Pietzke

Thanks, Harrold. Our detailed financials may be present in our shareholder letter. I’ll spend my time masking a number of excessive degree matters. We acknowledged $5.1 million of complete income within the second quarter with one buyer accounting for $5 million of service income on account of us finishing the preliminary phases of a product growth program.

Our adjusted EBITDA loss within the second quarter was $18 million in comparison with an adjusted EBITDA lack of $19.4 million within the first quarter of 2022. Excluding stock-based comp, our non-GAAP working bills within the quarter had been $19.5 million up from non-GAAP working bills of $19.4 million within the first quarter of 2022, which additionally excludes stock-based com.

We closed the second quarter of 2022 with internet money of $385 million down from $408 million within the first quarter of 2022, as a result of $20.6 million of money used operationally and $4 million of used on capital expenditure because of the timing of capital tools purchases. We anticipate increased capital spending the remainder of the yr as we make preliminary funds for our Gen-2 manufacturing line and proceed to outfit Fab-1 for increased output.

Now let’s talk about our steering. For full yr 2022, we now anticipate to make use of between $160 million and $180 million of money of which we anticipate roughly half shall be CapEx. As Harrold talked about, we’ve got prolonged our timeline to finish the design of our Gen-2 line, which impacts the timing of our money use.

Core income, we now anticipate to acknowledge between $6 million and $8 million for full yr 2022. We’ve got lowered the highest finish of the vary given by way of prioritizing enhancements in Fab-1 over shipments within the third quarter. We’re additionally incorporating our newest view on the cadence of service income.

To summarize, we achieved our goal of recognizing product income within the second quarter. We’re being considerate about spending and proceed to own a really sturdy steadiness sheet.

I’ll flip it again to Harrold for closing remarks. Harrold,

Harrold Rust

Thanks, Steffen. What excites me about our future is not only the huge progress alternative that lays forward of us with our breakthrough power density equally thrilling to me, our different attributes and options we are able to ship that we did not actually totally notice after we began in as a result of we modified the battery structure.

So radically issues which might be troublesome for others should not for us having a 100% lively Silicon nano with good cycle. Life is an instance of this, however there are different benefits that may very well be equally, if no more priceless. We introduced a number of of those over the previous quarter, our structure by its design delivers distinctive charge and thermal efficiency necessary in moveable electronics and important and EV purposes the place quick charging is a serious care about it additionally permits compelling security developments.

The primary of which we announce early this yr referred to as break move at the moment, we introduced that our break move cells go the nail penetration take a look at at Inventus energy. Our accomplice on the us military program, security is vital for our troopers who sometimes carry 15 to twenty kilos of batteries into the sector. The Inventus CTO said that quote Novis batteries are the one subsequent gen excessive power density cells to go our nail penetration take a look at and quote.

These are simply the beginning of what we are able to do with structure. Keep tuned to see what else we are able to do as a last word. As lots of you are conscious our chairman, TJ Rogers is known and Silicon valley for his love of know-how and explaining it in layman’s phrases. For those who actually need to perceive why break move is so necessary, we invite you to take a look at a video we posted at the moment on our web site, that includes TJ’s rationalization of break move, try the fireworks at aic.com/from the lab.

With that, I might like to show it again over to the operator to your questions operator.

Query-and-Reply Session

Operator

[Operator instructions] And our first query will come from Gabe Daoud of Cowen. Your line is open.

Gabe Daoud

Thanks for all of the ready remarks guys, simply, I do know perhaps what you do in income subsequent yr is not actually all that necessary within the grand scheme of issues, however may you perhaps simply speak a bit of bit in regards to the Gen-2 tools and simply form of elongating that, that design course of and I suppose anticipating that tools to reach now within the second half of subsequent yr.

So when ought to we anticipate, when ought to we anticipate that line to be I suppose producing some income. Is it actually like the primary half of ’24? Simply attempt to suppose by way of the timing there.

Harrold Rust

Yeah. Thanks Gabe. That is Harrold. Thanks for that query. So, simply form of some perspective, proper? We’re very centered on enhancements round Fab-1 this yr. That line would be the workhorse of our output subsequent yr. We’ve got made certain we put the entire studying from Fab-1 and our Gen-1 strains into Gen-2.

The best way we take into consideration Gen-2, it is actually the innovation of form of profitability and progress for this firm. And we obtained to ensure we get that precisely proper.

We have truly been engaged on these instruments fairly deep and designed for over six months. So that they progressed a protracted methods, however we need to be sure we seize form of that final studying on Fab-1.

So that you’re proper. our present outlook is that these instruments will land within the second half. There’s an opportunity these may come into manufacturing on the finish of the yr, however I feel the safer assumption is that they, they begin producing income within the first half of ’24. That is form of our present view. Clearly we’ll be working as a lot as we are able to to attempt to pull that in, however I’d take into consideration subsequent yr as actually being extra of a, a Fab-1 occasion from a income standpoint.

Gabe Daoud

Obtained it. Thanks, Harold. That is useful. After which perhaps simply shifting gears a bit, clearly appears to be like like there’s lots of demand without cost your batteries is clearly an important factor and also you talked about you accomplished the tech wall with these three strategic, so may you perhaps simply give us a bit of bit a shade of visibility into, I suppose, what occurs subsequent with these three strategic? When can we perhaps see that form of, form of transfer into the lively design or design one bucket?

Harrold Rust

Yeah, certain. I will speak a bit of bit after which perhaps have cam are available. one of many issues that is perhaps been a bit startling to us is form of fab. One has come up is how, how strongly these giant strategic firms have been desirous to push the ball ahead.

So we have been actually stuffed with that progress and engagement on the highest ranges with a few of these firms. And, through the quarter we truly ship shift cells from Fab-1 to 2 of these giant methods, which we expect is a superb omen and every one among these in precept may generate sufficient demand to form of fill us up for a variety of years.

So it is a great alternative. It is nice to see them actually pulling. After which, additionally of their thoughts form of getting by way of the tech quo half after which realizing we have a functioning manufacturing unit, it actually places us on a complete new dialog with him. And I will let cam speak a bit of bit about form of how he thinks these form of relationships transfer ahead.

Cameron Dales

Yeah, certain. Thanks, Harrold. Yeah. So, Gabe, for those who recall final quarter, we introduced fairly necessary announcement with one among these strategic accounts. I feel the story with the opposite three is analogous. These firms are I’d say very subtle about how they consider applied sciences the hurdles they set as much as then transfer ahead into product after which finally, into manufacturing. And, and so we view these tech calls as being basically the main know-how validation level for these firms.

And, what which means is that they’ve, they have been testing ourselves, a few of them for, for years truly. And we have reached some extent the place we meet, we meet our, their necessities and basically their necessities and their enterprise course of to maneuver ahead into form of product growth.

So yeah, as you, as you observe these, these the progress of these accounts ahead, we anticipate these to maneuver into the lively design win classes over time. After which finally if we’re profitable there into manufacturing and simply form of a word on the general atmosphere, Harrold alluded to this in his feedback, however there’s positively been an actual acceleration within the urgency of those CU, these potential prospects and the way they’re behaving with respect to the applications we’re working with them on.

We predict that is most likely triggered by the business milestones that we have met as a result of, to achieve that stage, it’s important to actually undergo basically all of the completely different items of your online business. The know-how has to work, the product has to work.

It must be dependable. You need to meet certifications, it’s important to meet high quality, you’ve got to have the ability to manufacture it. And in order they see that occuring right here it makes them transfer with elevated urgency in direction of capturing the worth {that a} battery like this may produce. And we’re positively seeing a mentality shift the place these giant firms are, are fascinated about battery as being a strategic lever of their companies.

It may well have an effect on basically every part that their, their merchandise finally do by way of efficiency, by way of kind issue, et cetera. And for the longest time there hasn’t actually been a strategy to compete on battery, and we expect it is an thrilling time for us as a result of that is actually to our information form of the primary actual breakthrough battery to, to make it to market. And it is being acknowledged as such by these firms.

Operator

And our subsequent query will come from Invoice Peterson of JPMorgan. Your line is open Invoice.

Invoice Peterson

Yeah. Hello. Thanks for taking my questions. If I may first begin off with the throughput and yield enhancements that you’ve got happening. Are you able to shed some extra mild on what is going on on?

Is it for instance, promote to the cell repeatability reliability or which means, I suppose, consistency constantly metrics reminiscent of power density or cycle life, simply making an attempt to get a really feel for what’s wanted to be improved, I suppose perhaps most significantly is do what the problems are in order that so we’ve got a great line of sight that, perhaps simply right here within the subsequent quarter or so you may get previous these points.

Harrold Rust

Certain. Thanks Invoice. Yeah, let me speak about that. So I do not, a few of it’s possible you’ll or might not know I am form of a producing man at my core. It is form of what I’ve achieved my entire life. So form of, due to that, I’ve obtained fairly excessive expectations for what I feel manufacturing, the place it must be. And I will be frank, we’re to not these expectations but.

That stated, I am inspired at our trajectory. We have been making good progress. if you consider our line one, to start with, I need to begin off by saying we do not have reliability issues with our units. We’ve got in offers, points that we’re engaged on, proper and these finally ends up being primarily issues the place you are engaged on tweaking tools all through the road to make the product run higher and to scale back fallout all through the road. However the stuff that we get out is 100% meets buyer specs.

So let me perhaps give a bit of little bit of shade simply for instance on that there is a level in our course of the place we apply what we name our constraint on our, on our cell. That is a vital factor that makes the Silicon work and that is a welded a part of our system.

I’d say after we began up that tools final yr, that tools was operating someplace beneath 80% by way of yield. So 20% of the elements at that step did not make it by way of as a result of we’ve got a really excessive thresholds for all these moist wanting good. And during the last a number of quarters, we successively have pushed that in as much as 90%, 95%, after which the present quarter to 98% proper.

So, and in some methods perhaps I might like to inform you only one factor in the long run of the day, it is ended up, it was ending up most likely being 20 small incremental issues we needed to do to make that course of higher. None of which had been magic, none of which had been science. It is only a bunch of the tip of the day form of tweaking. And that is actually what yield enchancment in manufacturing is.

Like my expertise in manufacturing earlier than by way of a number of firms that had been very excessive quantity is that it is form of this infinite, not infinite, however lengthy, lengthy recreation of simply fixing one factor after one other. And I am seeing, we’re making these enhancements. It is simply going to take, a number of quarters time to get that stuff achieved.

So I am tremendous optimistic. I do not see something on the market. I say as a present stopper we simply should hold our heads down and make these enhancements. It is one thing that I pay lots of private consideration to as a result of it is simply form of in my DNA. And I feel we have precisely the fitting individuals right here which might be going to get that pulled off. So I I am tremendous bullish on that path ahead. And I feel, we’ll see, quarter over quarter of enchancment in these issues as we transfer ahead.

Invoice Peterson

That is useful shade sounds extra, I do not know, blocking and tackling versus discovery or growth, in order that that is encouraging, I suppose the second half is, if we have a look at the subsequent kind of name a yr and a half shall be counting on, on Fab-1 to know to help these strategic prospects of which, clearly it seems like there’s sturdy demand, I suppose.

How do you steadiness that demand throughout these prospects with clearly restricted provide right here on the subsequent, like I stated, perhaps, year-over-year plus, after which how ought to we take into consideration the potential? I don’t know if it is unit alternative or kilowatt hours or income, however attempt to perceive what you would provide on this interim part earlier than the, the subsequent two fabs.

Harrold Rust

Yeah. You are proper. We’re very centered on Fab-1 and enhancing its output as we get into subsequent yr. That is one of many causes we’re, tremendous centered on how, when it is early days. I feel you a pair questions in there by way of form of balancing prospects, these are form of early days.

So we’re truly, we’re making an attempt to interact with prospects that the shoppers we need to develop with proper and there is at all times some balancing in there and we form of consciously have a look at {that a} everyday foundation. I feel at this level, we’re capable of make these engagements. We need to, there could also be some level sooner or later. We’ve got to do some down choice, however I do not suppose we’re there but.

Your second query is form of what does that output appear like? I feel our we’ll give some form of official steering as we get into our This fall name about subsequent yr. However our present considering is, Fab-1 by itself between the couple strains we’ve got right here is, is producing one thing within the single million digit items, this subsequent yr.

And relying on the product, that’s, there is a vary of revenues that may very well be. And so we’ll give some extra readability in that, sooner or later, however we will maximize Fab-1 get that studying into gen two and get that gen two line up as quickly as we are able to.

Operator

Thanks. And our subsequent query shall be coming from Colin Rusch of Oppenheimer.

Colin Rusch

Are you able to speak a bit of bit in regards to the affect of the break move know-how on pat price quantity, weight and security, and particularly what which means to your entrance into the EV Marco?

Harrold Rust

Yeah, certain. Possibly I will begin on that after which hand it over to Ashok for some feedback. We’re tremendous pumped about this break move factor. I feel the business is, is beginning to catch on in addition to traders. one of many large highlights this final quarter is we despatched gross sales with a break move to our, our accomplice for the us military program.

And you may think about their consultants at abusing cells, proper? They usually subjected ourselves to nail penetration checks, which is a proxy for different sorts of impairments, I’d say and I do not keep in mind the precise quote, however the primary quote from them was that is the one excessive power density cell they’ve ever examined. That is go this take a look at, which is a fairly compelling assertion, clearly in, in that area the place persons are getting shot at options like which might be tremendous necessary.

However I feel additionally if you consider even client area and a number of the historical past there break move can also be tremendous priceless. And I feel our prospects are very enthusiastic about that. Definitely the navy is and, we posted this video on the web site so that folks can get a bit of sense of how that works, that TJ form of narrated for us. I encourage individuals to take a look at that.

However I will let, I ought to speak a bit of bit about form of the know-how piece of {that a} bit extra, as a result of it is one among these options of our battery that we are able to uniquely do. Which I feel may be very thrilling to us and it is actually a perform of our completely different structure. So, so why do not you add some shade to that? Yeah,

Ashok Lahiri

Thanks Harrold. So, Harrold talked in regards to the affect and the buyer and the military after all security is of main consideration into different markets. And I feel your query was particularly about EV cells and sure, this know-how is basically fascinating to EV prospects additionally as a result of as all people is aware of, that may be a main think about consideration on how these prospects look or how these OEMs have a look at security.

So they’re, I feel equally on this know-how and actually it’s one thing that’s uniquely enabled by our know-how, by our structure and reply one other a part of your query. It has actually a negligible affect on the associated fee and the professional productiveness of the road. There may be some minor modifications that should be made.

Colin Rusch

Okay. Yeah. My query was actually questioning about price discount on the pack degree, however we are able to, we are able to take that offline. I am assuming that you are going to have the ability to save your prospects some price on the pack degree. In order that’s useful, however thanks for that. Simply by way of the issues that you just guys are balancing and, and the timeframes round this. So if I perceive, proper, it sounds such as you’re working by way of some engineering re-engineering on the road.

You are additionally speaking to a variety of prospects and taking a look at the way you serve the, the comparatively giant observe of demand and fascinated about what these contract phrases are. I suppose it is, for those who have a look at figuring out the ultimate places for the capability enlargement and, and work by way of timing on a few of these engineering plans, in addition to a few of these contractual parts, which can embrace some prepayments, how ought to we take into consideration, getting that info?

Is that one thing that you’re going to make an announcement on? Is that one thing you may simply give updates on across the quarterly name and when can we anticipate issues to get, a bit of bit clearer right here, is which have a 3 Q occasion or is that extra by the tip of the yr?

Cameron Dales

Thanks for the query. You’ll want to give it some thought on product income science. These are early days and we live with PO preparations, which we actually like, as a result of clearly that provides us lots of flexibility from the service income perspective. These are complicated growth applications, which we sometimes do not disclose phrases. And as we progress by way of our strategic accounts we’ll replace you as we go alongside by way of these phrases after we get to extra substantive contract preparations there exterior of like a PO based mostly association

Within the timeframe for ending the engineering for, for the next vegetation. Is that one thing that you just guys really feel such as you’re, you are closing in, on the wrapping that up, or is that going to be extra nearer to the tip of the yr?

Harrold Rust

No, I feel Colin, that is Harrold. We have been form of in detailed design mode on a number of the Fab-2 tools most likely for not less than 1 / 4. So that they’re fairly observe alongside. Possibly they had been form of sprucing the apple, however we need to get a few of these final enhancements in from Fab-1 into that. So, I’d view that we will transfer ahead with Gen-2 within the subsequent a number of weeks.

It isn’t that far off. And that may enable us to land that tools and the second half of half of subsequent yr. So it it is fairly mature already, however we need to be sure that is good, proper. It is actually our engine and progress going ahead.

Operator

And our subsequent query will come from Gus Richard of Northland Capital Markets.

Gus Richard

Sure. Thanks. For taking my motion. And congratulations on the, great progress you made within the quarter. My, first query is on the income break up within the quarter, was that $5 million milestone fee out of your first strategic buyer. That is was that $5 million milestone fee out of your first strategic buyer that is utilizing your battery and the watch and what number of different prospects made up the opposite 100 thousand of income step and why do not you are taking that?

Steffen Pietzke

Thanks for the query. From a product income perspective, that quantity is immaterial fairly small. We ship to a few prospects. The bulk is service income, and from a design perspective, we completed design, we delivered manufacturing items that closed out at giant growth program for that one strategic buyer.

So I can soar in a bit of bit too to on that. So complete, we shipped to 10 completely different prospects and 4 distributors, Gus, sorry. And amongst these two of these had been two strategic accounts. A kind of strategic accounts was the one which had been, was closing out the 5, 5 million that if that solutions your query straight.

Gus Richard

Obtained it and is the $5 million from the watch firm?

Steffen Pietzke

No. So we introduced final quarter a strategic charge that, that you just’re stating that their first product with us could be a sensible watch. The $5 million is a separate firm, separate undertaking and we’re, we’re truly not at Liberty to actually speak about what the applying is there. However based mostly on the, form of how we outline a strategic, these, every of those firms has a number of purposes that they, they may put our battery into.

Gus Richard

Obtained it. I perceive that. Thanks very a lot. After which Harold, as you consider getting the only million items exiting 2023 run charge, how do you consider that ramp? Is it going to be a linear ramp? Is it going to be exponential? Is it going to be a bit of begin, cease, how do, how do you consider ramping up the amount and kind of what that appears like as you progress?

Harrold Rust

Yeah, I feel I’d view that, This fall, it begins, nevertheless it’s nonetheless early days on the ramp. I feel, I feel for those who look all through subsequent yr. I would not view it as exponential. I’d view it as form of linear bit by way of the yr. See it. I feel you may see, some slope there, however not, not, not nothing I’d name exponential all year long. I do not suppose.

Gus Richard

Okay. That makes full sense. And if I may simply sneak yet one more in given a few of these main safety prospects need we’ll want lots of quantity. Have you ever guys had any discussions with them by way of, of licensing or JBS, the place would possibly that be?

Harrold Rust

I feel it is nonetheless fairly early days in that I feel for all of those guys, what’s vital to them initially is validating the know-how, convincing themselves. We’ve got a manufacturing line that is working. So we’re form of by way of that. Our view is step one for lots of those guys goes to be placing our product in one among their merchandise, our battery, proper. Is the primary level after which, we’ll see the place that takes us. a few of these issues might occur to the longer term. However proper now, we’re making an attempt to be a product firm camp may give a bit of bit, perhaps extra shade on that as properly.

Yeah and I feel that is about proper by way of the stage, however I, it, it is definitely honest to say that just about throughout the board with the, with a lot of these strategic accounts, that’s a part of the dialogue with them. It it is a part of they view that as a reasonably regular course of enterprise, we have positioned ourselves each from a technical and a manufacturing, kind of how we have designed our manufacturing course of.

We have particularly positioned ourselves to be in a scenario the place we are able to allow that to occur. If you consider giant runner smartphone or laptop computer, these are a whole lot of hundreds of thousands of items and none of these giant merchandise actually have a single supply ever.

And so we anticipate that, actually, it is a part of our long run enterprise mannequin. It isn’t essentially in our monetary projections, nevertheless it strategically it is in our mannequin. We predict it is an important choice for us going ahead. We predict it could actually actually leverage the know-how we constructed.

Operator

Thanks. And our subsequent query will come from Anthony Stoss of Craig Hallum. Your line is open.

Anthony Stoss

I am sorry, operator reduce off. You chop off. Hopefully it is Anthony’s Stoss, Craig Hallum. Harold, simply to observe up in your remark about ordering the tools within the subsequent a number of weeks, form of give a sign that you just suppose the tweaks you are going to do right here in Q3 and the manufacturing line shall be over. Ought to we assume that there shall be some manufacturing income in Q3 or, or form of zero it out and simply assume it is in This fall.

After which second query is, a lot of traction with potential prospects, the place are you seeing that the majority trash? And is it watch dimension batteries, telephones, laptops, cross the board, any shade could be appreciated.

Harrold Rust

Yeah. So thanks for that query. So from a you in your first query, I’d view that, the manufacturing output is fairly low in Q3. We actually are centered on getting all of the enhancements achieved to, begin the ramp in This fall. What, we’re transport out of fab run proper now could be form of our, we’ve got a wearable cell that we have designed to form of match into lots of sockets that is what’s on the market.

So I feel that is what you are going to see early within the yr. That is going to get traction. And I feel there’s lots of curiosity we ship that promote out to 10-plus prospects within the first — within the second quarter. That stated we’re additionally going to be, we’re additionally engaged on bigger cells out of our second line. And Cam can speak a bit of bit about form of how a few of these issues are progressing.

Cameron Dales

Yeah, certain. Comfortable to try this. Tony. Yeah. So we have at all times kind of considered how the enterprise grows going from wearable cells to cell communication, to laptops, that is form of the logical development by way of our product growth and launch and I feel that is how we’ll see it roll out. Harold’s right. I feel within the close to time period, by way of numbers of firms and merchandise it is closely weighted in direction of wearables at the moment, as a result of that product is able to go it is in the marketplace, it is certified.

So we’re seeing lots of exercise there, however as we take into consideration, and as I take into consideration the methods that the strategics are taking with us they actually all are form of taking the same method the place they begin with one product class to basically show not a lot the know-how, however our capacity to it and, and produce it with high quality.

And every of the businesses we’re working with, apparently sufficient has chosen form of a special product to go after first. So we like that method. We predict it is, we expect it is nice. It, it actually diversifies the place the enterprise goes. After which, in the long term we anticipate and our purpose is to develop a number of merchandise with these guys they usually, they may all, every one among them may most likely take basically all of our quantity for the foreseeable subsequent couple of years. In the event that they, in the event that they wished to try this and if we allowed that to occur, which most likely would not be in our, our direct curiosity to be so concentrated. And so we’re making an attempt to unfold it out.

Anthony Stoss

Thanks, Cam if I may truly direct a observe up final query to you, are you continue to ready with the pausing of the plant, the optimization right here in Q3, are you continue to capable of fulfill demand to your prospects for each Q3 and core This fall items?

Cameron Dales

No, we won’t fulfill demand for patrons in any respect now and even subsequent yr or the yr after. Proper, there’s positively an allocation that has to occur. That stated, can I meet my targets out of what I have to do in Q3 and This fall? Sure, and my targets actually are round primarily round quals and setting us up for quantity because the because the manufacturing capability comes on-line.

Operator

And our subsequent query will come from Ananda Baruah from Loop Capital. Your line is open, Amanda.

Ananda Baruah

Hey, yeah, thanks. Good afternoon guys. And congrats on all the excellent news at the moment. Yeah, only a couple, if I may going again to the remarks you guys have made about strategic accounts, seeing an actual acceleration and urgency, the business milestones that you just stated had been the catalysts for that, are these their very own business milestones within the work with you? Or does that additionally embrace you guys, any business milestones and non-strategic accounts? Are they now seeing the kind of the efficacy of the, of the product?

Harrold Rust

Yeah, I feel there’s most likely some, each of which might be like all at cam form of give some shade. Yeah. Hey that is a great query. The best way we see it’s every of those firms have their very own rigorous course of for testing our ourselves and convincing themselves of the validity of the know-how and the merchandise, proper. And that that is form of its personal.

As an example enterprise course of that strikes alongside. What we imply by an acceleration is that they, it, it is form of a set off for them once they see the corporate go business and so, that was the massive milestone for this final quarter business product going out of the manufacturing unit. And once they see that it is a set off, it is a set off for them and it makes them notice that this factor goes to go, after which all people’s nervous about, sustaining a aggressive benefit.

And so that you, you get into this aggressive dynamic the place, the place individuals begin to get a concern of lacking out, as a result of there is a restricted quantity of capability and relative to the chance there, that is going to be true for, I feel, a while now. In order that’s form of what we meant by it being a set off.

It is actually, I feel look, battery know-how is at all times very obscure all of the little nuances and caveats and particulars of, of how does it work and whether or not it really works and once you truly get business items out the door to actual prospects, you have basically answered all of these questions and so it is a large deal and that is completely how our, lots of our prospects view the achievement of these.

Ananda Baruah

Okay. That is useful context. And, and so I suppose, wouldn’t it be based mostly on what you guys have skilled internally in dialog kind of within the context of that decision, like acceleration and urgency, wouldn’t it be additionally your opinion that there is a risk that they kind of like, I do not know what the fitting, the fitting description is right here, however like transfer at a quicker tempo now, provided that urgency to finish a few of these a few of these manufacturing {qualifications}.

Harrold Rust

Yeah. That is what we’re saying by acceleration. We predict that the engagements are shifting at a quicker tempo and I feel, and on we additionally talked about perhaps within the prior name that, or we had a press launch the place, one among these giant stated they need to attempt to transfer us throughout their total product line as quickly as attainable proper.

So they are going to be most likely pulling on us fairly exhausting, I’d say. Yeah, positively despatched the urgency. Now that stated, after all, none of these firms will brief circuit their high quality and, and, course of for creating high quality merchandise. However there’s motivation to go as quick as attainable.

Ananda Baruah

That is useful. Understood. After which only a fast observe up right here on, on the military now to make congrats on that. So what, what could be now the important thing milestones remaining from the place you’re proper now to, to going into manufacturing quantity with them?

Cameron Dales

Yeah, certain. So, what we introduced at the moment was what what’s referred to as part three and part 4 of the general program. Part 1 and two, we introduced that I suppose a couple of yr in the past and the, the aim of part one and two was for the military to check the, our customary merchandise confirm our claims on efficiency by way of power density, cycle, life security.

Harrold talked about the nail pen penetration testing that they do. And given the outcomes of these checks, they, they selected to maneuver ahead with this observe on contract. And the, the aim of this contract is for us to configure mainly our ourselves in the fitting kind issue and design to suit into the present CWB the conformal wearable battery pack.

That is the multi-sale pack that goes right into a soldier vest. So construct cells that match into that, then do the mixing with the pack after which do some pack degree testing. Okay. In order that’s form of this part subsequent. We might transfer into basically area trials with, actual packs going out within the area on a trial foundation with troopers after which subsequent past that may be, basically quantity manufacturing.

Ananda Baruah

Superior. Any care to guess what the subsequent two phases, subsequent few steps, how lengthy that might take roughly?

Harrold Rust

Our expectation is that, it is a number of years, it is the military, has a rigorous strategy of going by way of we’ll begin to see what we contemplate to be, significant income although. And earlier than we’re in full scale manufacturing, as a result of there’s lots of work that goes into the sector trailing and there is some quantity related to that now that that each one stated it isn’t essentially regular occasions, I’d say with respect to this kind of a program, part of the explanation why they’re actually enthusiastic about what we’re doing is the product.

However one other a part of the reason being that this is able to be domestically produced and there actually are very restricted selections for firms, batteries promote manufacturing firms in the USA. And so we’re very properly positioned there.

And for those who simply form of take into consideration what’s occurring on the earth round safety provide and the place our present provide chains for lithium batteries are coming from, that is not essentially probably the most secure a part of the world at the moment. And, and so you’ll be able to relaxation assured that there is sensible individuals on each side of the aisle, the best degree who’re actually nervous about this and, and making an attempt to determine methods to speed up it.

Ananda Baruah

That is tremendous useful context. Thanks lots. I will see earlier than there. Thanks.

Operator

Thanks. And our subsequent query comes from Marc Cohodes of Alder Lane Farm.

Marc Cohodes

Properly, thanks. Have a pair feedback and throw a number of questions in there. To start with, most likely among the finest calls I’ve heard from anybody in a pair years and given how making an attempt and troublesome the world, the world is limitless demand is a fairly good factor to have.

So I talked to a few you, these prospects, these mega guys, and, and Harold, are you able to touch upon this? One among them stated that with out the OVS battery, our product wouldn’t exist. Can a, you speak about that idea, are you seeing this with others? And to me, after I have a look at these higher than 200 billion enterprises, that may be place of apple, Samsung, Fb, Tesla, and perhaps one other one I am lacking. So does that do these names? Do they match the invoice? That is one which query two.

And at last, Cam, are you able to speak in regards to the bake off in OTO? That is happening? When can we anticipate to see one thing, what that enterprise mannequin appears to be like like and, and, and eventually simply rather well achieved guys. That is only a substantial enchancment of prior calls and I am very pleased with you and proud to be a part of this deal.

Cameron Dales

Hey, thanks for that, Marc. I respect the good feedback. You are proper. I feel if you consider these giant strategic, all of them have merchandise, a few of which we most likely find out about a few of which we do not, that are sitting in again closets ready for a battery. That is ok to make them occur. There could be different challenges as properly, proper.

However, if you consider the final 20 years, product designers have been, informed time and time once more, you’ll be able to’t do that as a result of you do not have the battery energy. Proper. So having a battery nearly as good as ours unlocks lots of these issues and make them attainable. What, a few of these we most likely ourselves do not even find out about these are fairly cagey firms. I’d say that there is, there’s clearly, one rising, market form of the subsequent computing market of AR the place that product itself is that this massively challenged from battery life.

And what we have talked about up to now, and we have heard from a variety of gamers in that area is that the one battery that they see that basically makes that product work as ours, proper? In order that’s a fairly sturdy endorsement for a way vital we’re to one thing that is form of actually not on the market but. And we really feel excited to be, an organization that has one thing that may make that occur and be that highly effective on the earth.

So I feel that is one instance of that. And I will let Cam form of speak about your second query. Yeah. Okay. Hey mark. Yeah, I feel your query was pertaining to, what’s occurring on the EV entrance and the way can we view that?

Cameron Dales

No, no query two was Apple, Fb, Samsung, do these names match that higher than $200 billion invoice? Is that, am I, am I guessing in that neighborhood property? I do know you’ll be able to’t point out prospects, however I can. So am I, am I guessing in the fitting lakes there that is my query too. After which query three is in regards to the auto.

Sorry, query two. What we have stated is that we’re working with a variety of what we name strategic accounts and we have outlined them to be market caps over $200 billion and able to utilizing our, our battery in a number of product classes and so yeah, it is fairly straightforward to Google what which means. I feel, there is a, there is a handful of firms that match that invoice on the EV aspect. Yeah, truly it is, it is form of thrilling occasions, we launched a Novus Mobility, which is its personal enterprise unit and staff I suppose final quarter formally.

And, that staff is chartered with basically changing the success we have had on this know-how growth and the buyer market to an actual product that we expect is, is extraordinarily properly positioned technically to assist transfer the electrical automobile mission ahead. And in order a part of that, as you’ll be able to think about, we’re, we’re very actively assembly with worldwide OEMs all around the world.

And, we expect we will have a chance to have the ability to form of select the fitting accomplice for us. And there is a entire, variety of concerns that go into that from technical match to their technique, to tradition to their, to what our judgment is of their capacity to win, and so I feel issues are shifting alongside there fairly properly. When can we anticipate to see one thing on that you just suppose, yeah,

Harrold Rust

That one’s more durable to say simply because there’s a lot of various things that go into our capacity to say one thing publicly, however simply relaxation assured that we’re having very fascinating discussions now that we hope will play out and eventually, and eventually, to the promote aspect on the market, you guys do not have a straightforward job, however a few of you’ll be able to’t even see the forest by way of the timber and also you’re so myopic and centered.

Look a bit of broader on what can occur right here, as a result of finest product for what these guys do win. It at all times has gained and it’ll win. So a few of your guys’ questions are simply past insane. So simply be a bit of extra broader in scope, I’d counsel. Thanks.

Operator

Thanks. I am displaying no additional questions. This concludes at the moment’s convention. Thanks for taking part. You could now disconnect.



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