Enovix Corp (ENVX) 2022 Q2 法說會逐字稿

Thank you for standing by and welcome to the Enovix Corporation second-quarter 2022 earnings conference call. (Operator instructions) As a reminder, today's program will be recorded.

And now I would like to introduce your host for today's program, Charles Anderson, Senior Vice President of Investor Relations. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to Enovix Corporation's second-quarter 2022 financial results conference call. With us today are President, Chief Executive Officer, and Cofounder Harrold Rust and Chief Financial Officer Steffen Pietzke. We will also be joined today by Chief Commercial Officer Cam Dales and Chief Technology Officer and Cofounder Ashok Lahiri for the Q&A portion of our call. Harold and Steffen will review the operating and financial highlights and then we will take questions. After the Q&A session, we will conclude our call.

Before we continue, let me kindly remind you that we released our second-quarter 2022 shareholder letter after the market close today. It is available on our website at ir.enovix.com. A replay of this conference 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 a discussion of factors that could affect our future financial results and 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, August 10, 2022, based on the information currently available to us. We can give no assurance that these statements will prove to be correct and we do not intend and undertake no duty to update these statements except as required by law.

During this call, we will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. You can find a reconciliation of the GAAP financial measures to non-GAAP financial measures in our shareholder letter, which is posted on the Investor Relations page of our website.

I will now turn the call over to Harrold to begin. Harrold.

Thank you, Charlie. The second quarter was a great quarter for Enovix and a major milestone in our evolution as a company.

I want to start today by going back to the beginning. When we started Enovix in 2007, we did so with a belief that there must be a better way to make the modern battery, one that advanced architecture over materials. On paper, we felt we could improve energy density by as much as 100% and deliver the best product in an industry that would have enormous strategic importance.

We knew we had the people that could pull it off from prior companies where the architecture of our product was our core competency. But we also knew it wouldn't be easy to change the fundamentals of how something had been made for over 50 years.

In the spring of 2020, we started ordering the equipment for our first production line and gutted the building I'm sitting in to prepare for the production of our battery. A few months later, COVID brought the world to a stop. We could have used that as an excuse for failure. We didn't. We just figured out how to get the job done, knocking down one challenge at a time. Resilience was one of the core values of our people.

In February 2021, when we announced plans to become a publicly traded company, we set an ambitious goal to bring up and qualify our first-of-a-kind battery production line in the US at what we call Fab-1. And then to deliver our first commercial product and recognize product revenue in the second quarter of this year.

Today I am pleased to report that we accomplished that goal and have since delivered batteries from Fab-1 to multiple customers and distributors. It turns out that we were right about batteries becoming strategically important. Industry leaders have taken note of Enovix moving into production with a revolutionary product and have become increasingly aggressive in moving forward.

Specifically, in the second quarter, we completed tech qual with three mega cap technology companies, which we refer to as strategic accounts. Two of these are the same companies that told us we have the best advanced battery they have tested, and a third told us their goal is to move our technology across their product portfolio quickly. And we all know that in this business, the best products wins.

On top of that, we completed the initial phases of a product development program in the second quarter with a fourth strategic account after shipping commercial sales from Fab-1 and recognized $5 million in revenue from this customer. Equally importantly strategically is the U.S. Army, who has a critical need for high energy batteries manufactured in the US.

I'm proud to announce that we received a follow-on evaluation contract in the second quarter to build and test custom cells for wearable battery packs U.S. Army soldiers carry into the field. This opportunity is very large. Our estimate is that the total US wearable military battery market is approximately $350 million annually based on currently established military programs. We believe our battery can deliver considerable operational advantages for our soldiers while at the same time providing resiliency of domestic supply.

While we continue to work on moving customers through our funnel towards orders, we are focused on improving the output of our factory to meet future demand. We made solid improvement in output and yield during the quarter, but we need to increase our manufacturing yield metrics. There is no easy path when bringing up a first-of-a-kind manufacturing line. It is a relentless effort of continuous improvement. I'm an operations person at heart. I have ramped multiple high-volume factories in my career and I'm super confident we will get the job done.

We are prioritizing Fab-1 improvements in the third quarter. This includes taking the line down for portions of the quarter to improve individual process modules and install planned battery conveyance. Our goal is to do the needed work in Q3 to position us for the start of our production ramp to close the year.

We're putting all this learning into our Gen2 production line design. Major portions of Gen2 are designed to be half the footprint of Gen1 with increased output. We had hoped to have finished our Gen2 ordering in Q2, but we extended the design activities to incorporate all the latest learnings from Fab-1 as well as our BrakeFlow technology. We now expect Gen2 to be installed in Fab-2 in the second half of 2023. As previously discussed, we expect to have both a domestic and an Asian fab location over the next several years.

I also want to reemphasize that we have multiple paths to grow the company, including capital-light options such as JV or licensing. This is the likely path for the electric vehicles market, and it may also be a viable path to support the capacity requirements of our roster of strategic accounts.

Now let me turn the call over to Steffen, who will discuss our financials. And after that, I'll make some closing remarks.

Thank you, Harrold. Our detailed financials can be found in our shareholder letter. I will spend my time covering a few high-level topics. We recognized $5.1 million of total revenue in the second quarter, with one customer accounting for $5 million of service revenue as a result of us completing the initial phases of a product development program.

Our adjusted EBITDA loss in the second quarter was $18 million compared to an adjusted EBITDA loss of $19.4 million in the first quarter of 2022. Excluding stock-based comp, our non-GAAP operating expenses in the quarter were $19.5 million, up from non-GAAP operating expenses of $19.4 million in the first quarter of 2022, which also excludes stock-based comp.

We closed the second quarter of 2022 with net cash of $385 million, down from $408 million in the first quarter of 2022 due to $20.6 million of cash used operationally and $4 million of cash used on capital expenditure due to the timing of capital equipment purchases. We expect higher capital spending the rest of the year as we make initial payments for our Gen2 production line and continue to outfit Fab-1 for higher output.

Now let's discuss our guidance. For full year 2022, we now expect to use between $160 million and $180 million of cash, of which we expect roughly half will be CapEx. As Harrold mentioned, we have extended our timeline to complete the design of our Gen2 line, which impacts the timing of our cash use.

For revenue, we now expect to recognize between $6 million and $8 million for full year 2022. We have lowered the top end of the range, given we are prioritizing improvements in Fab-1 over shipments in the third quarter. We are also incorporating our latest view on the cadence of service revenue. To summarize, we achieved our target of recognizing product revenue in the second quarter. We are being thoughtful about spending and continue to possess a very strong balance sheet.

I will now turn it back to Harrold for closing remarks. Harrold?

Thanks, Steffen. You know, what excites me about our future is not just the massive growth opportunity that lays ahead of us with our breakthrough energy density. Equally exciting to me are other attributes and features we can deliver that we didn't really fully realize when we started Enovix.

Because we changed the battery architecture so radically, problems that are difficult for others are not for us. Having a 100% active silicon anode with good cycle life is an example of this.

But there are other advantage that could be equally if not more valuable. We announced several of these over the past quarter. Our architecture by design delivers exceptional rate and thermal performance, important in portable electronics and critical in EV applications where fast charging is a major care about. It also enables compelling safety advancements, the first of which we announced earlier this year called BrakeFlow.

Today we announced that our BrakeFlow cells passed the nail penetration test at Inventus Power, our partner on the U.S. Army program. Safety is critical for our soldiers, who typically carry 15 to 20 pounds of batteries into the field. The Inventus CTO stated that, quote, Enovix batteries are the only next-gen high-energy density cells to pass our nail penetration test, end quote. These are just the start of what we can do with our architecture. Stay tuned to see what else we can do.

As a final note, as many of you are aware, our Chairman T.J. Rodgers is legendary in Silicon Valley for his love of technology and explaining in layman's terms. If you really want to understand why BrakeFlow is so important, we invite you to check out a video we posted today on our website featuring T.J.'s explanation of BrakeFlow. Check out the fireworks at enovix.com/fromthelab.

With that, I'd like to turn it back over to the operator for your questions. Operator?

(Operator instructions) Gabe Daoud, Cowen.

Afternoon, everyone. It's Gabe Daoud here. Thanks for all the prepared remarks, guys. Just I know maybe what you do in revenue next year isn't really all that important in the grand scheme of things, but could you maybe just talk a little bit about the Gen2 equipment and just kind of elongating that design process? And I guess expecting that equipment to arrive now in the second half of next year.

So when should we expect that line to be I guess generating some revenue? Is it really like the first half of '24? Just trying to think through the timing there.

Yes, thanks, Gabe. This is Harrold for that question. So you know, just kind of some perspective, right? I mean, we're very focused on improvements around Fab-1 this year. That line will be the workhorse of our output next year. We have made sure we put all of the learning from Fab-1 and our Gen1 lines into Gen2.

I mean, the way we think about Gen2, it's really the innovation of profitability and growth for this company and we got to make sure we get that exactly right. We've actually been working on those tools pretty deep in design for over six months. So they progressed a long ways, but we want to make sure we capture that last learning on Fab-1.

So you are right. Our current outlook is that those tools will land in the second half. There's a chance those could come into production at the end of the year, but I think the safer assumption is they start producing revenue in the first half of '24. That is kind of our current view. Obviously, we will be working as much as we can to try to pull that in. But I would think about next year as really being more of a Fab-1 event from a revenue standpoint.

Got it. Thanks, Harrold. That's helpful. And then maybe just shifting gears a bit, obviously it looks like there's a lot of demand for your batteries. It's obviously a great thing, and you mentioned you completed the tech qual with those three strategics. So could you maybe just give us a little bit of color or visibility into I guess what happens next with those three strategics? When could we maybe see that move into the active design or design win bucket?

Yes, sure. I will talk a little bit and then maybe have Cam come in. You know, one of the things that's maybe been a bit startling to us as kind of Fab-1 has come up is how strongly these large strategic companies have been wanting to push the ball forward. So we have been really thrilled with that progress and engagement at the highest levels with some of these companies.

And during the quarter, we actually shipped cells from Fab-1 to two of those large strategics, which we think is a great omen. And each one of these in principle could generate enough demand to kind of fill us up for a number of years. So it's a tremendous opportunity. It's great to see them really pulling. And then also in their mind, kind of getting through the tech qual part and then realizing we've got a functioning factory. It really puts us in a whole new conversation with them.

I'm going to let Cam talk a little bit about kind of he thinks of those kind of relationships move forward.

Yes, sure. Thanks, Harrold. Yes, so Gabe, if you recall, last quarter we announced a pretty important announcement with one of these strategic accounts. I think the story with the other three is similar. I mean, these companies are, I would say, very sophisticated about how they evaluate technologies. The hurdles they set up to then move forward in the product and then ultimately into production.

And so we view these tech quals as being essentially the major technology validation point for these companies. And what that means is that they've been testing our cells, some of them for years, actually. And we've reached a point where we meet their requirements and essentially their requirements and their business process to move forward into kind of product development. So as you follow those -- in the progress of those accounts forward, we expect those to move into the active design/design win categories over time and then ultimately if we're successful there into production.

And just kind of a note on the overall environment. I mean, Harrold alluded to this in his comments, but there's definitely been a real acceleration in the urgency of these potential customers and how they are behaving with respect to the programs we are working with them on.

We think that's probably triggered by the commercial milestones that we've met. Because to reach that stage, you have to really go through essentially all the different pieces of your business. The technology has to work, the product has to work, it has to be reliable, you have to meet certifications, you have to meet quality, you have to be able to manufacture it.

And so as they see that happening here, it makes them move with increased urgency towards capturing the value that a battery like this can produce. And we're definitely seeing a mentality shift where these large companies are thinking about battery as being a strategic lever in their businesses. It can affect essentially everything that their products ultimately do in terms of performance, in terms of form factor, et cetera.

And for the longest time, there hasn't really been a way to compete on battery. And we think it's an exciting time for us because this is really, to our knowledge, the first real breakthrough battery to make it to market and to being recognized as such by these companies.

Awesome, Cam. Really helpful. Thanks, everyone.

Bill Peterson, JPMorgan.

Yes, hi. Thanks for taking my questions. If I could first start off with the throughput and yield improvements that you have going on. I guess, can you shed some more light on what is going on? Is it, for example, cell-to-cell repeatability, reliability, or meeting, I guess, consistently metrics such as energy density or cycle life?

Just trying to get a feel for what's needed to be improved. And I guess maybe most importantly is do you know what the issues are so we have a good line of sight that maybe just here share in the next quarter or so you can get past these issues?

Sure, thanks, Bill. Yes, let me talk about that. So some of you may or may not know, I'm kind of a manufacturing guy at my core. It's kind of what I've done my whole life. So kind of because of that, I've got pretty high expectations for what I think manufacturing, where it needs to be.

And I will be frank; we are not to those expectations yet. That said, I'm encouraged at our trajectory. We've been making good progress. If you think about our line -- first of all, I want to start off by saying we don't have reliability problems with our devices. We have [inline deal] issues that we are working on. And these end up being primarily things where you are working on tweaking equipment throughout the line to make the product run better and to reduce fallout throughout the line. But the stuff that we get out is 100% meets customer specs.

So maybe let me give a little bit of color just as an example on that. There is a point in our process where we apply what we call our constraints on our cell. That's a critical thing that makes the silicon work, and that's a welded part of our device. I would say when we started up that equipment last year, that equipment was running somewhere below 80% in terms of yield, so 20% of the parts at that step didn't make it through because we have a very high threshold for all those welds looking good. And over the last several quarters, we successively have driven that up to 90%, 95%, and in the current quarter to 98%.

So in some ways, maybe I'd love to tell you it was just one thing. In the end of the day, it was ending up probably being 20 small incremental things we had to do to make that process better. None of which were magic; none of which were science. It's just a bunch of the end of the day kind of tweaking.

And that's really what yield improvement in manufacturing is like. My experience in manufacturing before through several companies that were very high volume is that this kind of endless -- not endless, but long game of just fixing one thing after another, and I'm seeing we are making those improvements. It's just going to take several quarters then to get that stuff done.

So I'm super optimistic. I don't see anything out there I'd say is a showstopper. We just have to keep our heads down and make those improvements. It's something that I pay a lot of personal attention to because it's kind of in my DNA. And I think we've got exactly the right people here that are going to get that pulled off. So I'm super bullish on that path forward, and I think we will see quarter-over-quarter improvement in those things as we move forward.

That's helpful color. It sounds more, I don't know, blocking and tackling versus discovery or development, so that's encouraging. I guess the second part is if we look at the next sort of, call it, year and a half, we will be relying on Fab-1 to support the strategic customers, of which obviously it sounds like there's strong demand.

I guess, how do you balance that demand across these customers with clearly limited supply here in the next, like I said, maybe year, year-plus. And then how should we think about the potential -- I don't know if it is unit opportunity or kilowatt hours or revenue, but trying to understand what you could supply in this interim phase before the next two fabs?

Yes, I mean, you're right. We're very focused on Fab-1 and improving its output as we get into next year. That's one of the reasons we're super focused on it now when is early days.

I think you had a couple of questions in there. In terms of kind of balancing customers, these are kind of early days, so we are actually -- we are trying to engage with customers, the customers we want to grow with. And there's always some balancing there and we kind of consciously look at that on a day-to-day basis. I think at this point, we are able to make those engagements we want to. There may be some point in the future we have to do some down-selection, but I don't think we are there yet.

Your second question is kind of what does that output look like. I think -- we will give some kind of official guidance as we get into our Q4 call about next year, but our current thinking is Fab-1 on its own, between the couple of lines we have here, is producing something in the single-million-digit units this next year. And depending on the product that is, there's a range of revenues that could be. So we will give some more clarity on that in the future, but we're going to maximize Fab-1, get that learning into Gen2, and get that Gen2 line up as soon as we can.

Okay, thanks for the additional color.

Colin Rusch, Oppenheimer.

Can you talk a little bit about the impact of the BrakeFlow technology on pack cost, volume, weight, and safety? And especially what that means for your entrance into the EV market?

Yes, sure. Maybe I will start on that and then hand it over to Ashok for some comments. You know, we're super pumped about this BrakeFlow thing. I think the industry is starting to catch on as well as investors.

One of the big highlights this last quarter is we sent cells with BrakeFlow to our partner for the U.S. Army program. And you can imagine, they're experts at abusing cells and they subjected our cells to nail penetration tests, which is a proxy for other types of impalements, I would say.

And I don't remember the exact quote, but the basic quote from them was this is the only high-energy density cell they'd ever tested that passed this test, which is a pretty compelling statement. Obviously, in that field where people are getting shot at, features like that are super important. But I think also if you think about even the consumer space and some of the history there, BrakeFlow is also super valuable and I think our customers are very excited about that. Certainly the military is.

And we posted this video on the website so that people can get a little sense of how that works that T.J. kind of narrated for us. I encourage people to look at that.

But I will let Ashok talk a little bit about the technology piece of that a bit more. Because it's one of these features of our battery that we can uniquely do, which I think is very exciting to us. And it's really a function of our different architecture. Ashok, why don't you add some color to that?

Thanks, Harrold. So Harrold talked about the impact on the consumer and the Army. Of course, safety is of primary consideration into other markets, and I think your question was specifically about EV cells.

And yes, this technology is really interesting to EV customers also. Because as everybody knows, I mean, that is a primary factor in consideration on how these customers look -- or how these OEMs look at safety. So they are I think equally interested in the technology.

And really, it is something that is uniquely enabled by our technology, by our architecture. And to answer another part of your question, it has really a negligible impact on the cost and the productivity of the line. There is some minor modifications that have to be made.

Okay. Yes, my question was really wondering about cost reduction at the pack level, but we can take that off-line. I'm assuming that you're going to be able to save your customers some cost at the pack level. So that's helpful, but thanks for that.

You know, just in terms of the things that you guys are balancing and the timeframes around this, so if I understand right, it sounds like you are working through some reengineering on the line. You are also talking to a number of customers and looking at how you serve the relatively large volume of demand and thinking about what those contract terms are.

I guess as you look at identifying the final locations for the capacity expansion and work through timing on some of those engineering plans as well as some of those contractual elements, which may include some prepayments, how should we think about getting that information? Is that something that you will make an announcement on? Is that something you will just give updates on around a quarterly call? And kind of when can we expect things to get a little bit clearer here? Is that kind of a 3Q event or is that more by the end of the year?

Colin, this is Steffen. Thanks for the question. You need to think about it on a product revenue side. These are early days and we are living with PO arrangements, which we really like because obviously that gives us a lot of flexibility. From the service revenue perspective, these are complex development programs, which we typically don't disclose terms. And as we progress through our strategic accounts, we will update you as we go along through those terms when we get to more substantive contract arrangements there outside of like a PO-based arrangement.

And the timeframe for finishing engineering for the follow-on plants, is that something that you guys feel like you are closing in on that and wrapping that up? Or is that going to be more closer to the end of the year?

No, I think -- Colin, this is Harrold. We've been kind of in detail design mode on some of the Fab-2 equipment probably for at least a quarter, so they are pretty far along. I mean, maybe you'd say we're kind of polishing the apple, but we want to get some of these last improvements in from Fab-1 into that.

So I mean, I would few that we are going to move forward with Gen2 in the next several weeks. It's not that far off. And that would allow us to land that equipment in the second half of next year. So it's pretty mature already, but we want to make sure this is perfect. It's really our engine of growth going forward.

Perfect. Thanks so much, guys.

G. Richard, Northland Capital Markets.

Yes, thanks for taking my question and congratulations on the tremendous progress you made in the quarter. My first question is on the revenue split in the quarter, was that $5 million milestone payment from your first strategic customer that's -- was that $5 million milestone payment from your first strategic customer that's using your battery in the watch? And how many other customers made up the other $100,000 of revenue?

Steffen, why don't you take that?

Thanks for the question, Richard (sic). From a product revenue perspective, that amount is immaterial, pretty small. We shipped to a couple of customers. The majority is service revenue. And from a design perspective, we finished design; we delivered production units and that closed out that large development program for that one strategic customer.

Sure, I can jump in a little bit, too, on that, Gabe. So total, we ship to 10 different customers and four distributors -- Gus, sorry. And among those, two of those were two strategic accounts. One of those strategic accounts was the one that was closing out the $5 million, if that answers your question directly.

Got it. And is the $5 million from the watch company?

No. So we announced last quarter a strategic right that you are pointing out that their first product with us would be a smartwatch. The $5 million is a separate company, separate project, and we're actually not at liberty to really talk about what the application is there. But based on kind of how we define a strategic, each of these companies has multiple applications that they could put our battery into.

Got it. I understand now. Thank you very much. And then, Harrold, as you think about getting the single-million units exiting 2023 run rate, how do you think about that ramp? Is it going to be a linear ramp? Is it going to be exponential? Is it going to be a little start-stop? How do you think about ramping up the volume and sort of what that looks like as you progress?

Yes, I think I would view that Q4, it starts, but it's still early days on the ramp. I think if you look throughout next year -- I wouldn't view it as exponential. I would view it as kind of linear a bit through the year. You will see it; I think you will see some slope there, but nothing I would call exponential throughout the year, I don't think.

Okay. That makes complete sense. And if I could just sneak one more in, given some of these major strategic customers want -- will need a lot of volume, have you guys had any discussions with them in terms of licensing or JVs? Where might that be?

I think it's still pretty early days in that. I think for all of these guys, what's critical to them initially is validating the technology, convincing themselves we have a production line that's working. So we are kind of through that. Our view is the first step for a lot of these guys is going to be putting our product in one of their products -- our battery, right, as the first point -- and then we will see where that takes us.

Some of those things may happen in the future. But right now, we're trying to be a product campanile company. Cam can give a little bit maybe more color on that as well.

Yes, I think that's about right in terms of the stage. But it's certainly fair to say that pretty much across the board with these types of strategic accounts, that is part of the discussion with them. It's part -- they view that as a fairly normal course of business.

We've positioned ourselves both from a technical and a production sort of how we've designed our manufacturing process, we've specifically positioned ourselves to be in a situation where we can enable that to happen. If you think about large runner smartphone or laptop, I mean, these are hundreds of millions of units and none of those large products really have a single source ever.

So we expect that; in fact, it's part of our long-term business model. It's not necessarily in our financial projections, but strategically it's in our model. We think it's a great option for us going forward. We think it can really leverage the technology we've built.

Perfect. Thank you so much.

Anthony Stoss, Craig-Hallum.

Harrold, just to follow up on your comment about ordering the equipment in the next several weeks, kind of give an indication that you think the tweaks you are going to do here in Q3 in the production line will be over. Should we assume that there will be some production revenue in Q3? Or can I zero it out and just assume it's in Q4?

And then second question is lots of traction with potential customers. Where are you seeing that most traction? Is it watch-sized batteries, phones, laptops, across the board? Any color would be appreciated.

Yes, so thanks for that question. So on your first question, I would view that the production output is pretty low in Q3. We really are focused on getting all the improvements done to start the ramp in Q4. You know, what we're shipping out of Fab-1 right now is kind of our -- we have a wearable cell that we've designed to kind of fit into a lot of sockets. That is what's out there. So that's what you are going to see early in the year that's going to get traction.

And I think there's a lot of interest. We shipped that cell out to 10-plus customers in the second quarter. That said, we're also going to be -- we're also working on larger cells out of our second line. And Cam can talk a little bit about how some of those things are progressing.

Yes, sure. Happy to do that, Tony. Yes, so we've always thought about how the business grows going from wearable cells to mobile communication to laptops. That's kind of the logical progression in terms of our product development and launch. And I think that's how we will see it roll out.

Harrold is correct. I think in the near term in terms of numbers of companies and products, it's heavily weighted towards wearables today because that product is ready to go. It's on the market; it's qualified. So we are seeing a lot of activity there. But as we think about and as I think about the strategies that the strategics are taking with us, they really all are kind of taking a similar approach where they start with one product category to essentially prove the -- not so much the technology, but our ability to scale it and produce it with quality. And each of the companies we are working with, interestingly enough, has chosen kind of a different product to go after first.

So we like that approach. We think it's great. It really diversifies where the business is going. And then in the long run, we expect and our goal is to develop multiple products with these guys. And they could all -- each one of them could probably take essentially all of our volume for the foreseeable next couple of years if they wanted to do that and if we allow that to happen, which probably wouldn't be in our direct interest to be so concentrated. And so we are trying to spread it out.

Thanks, Cam. If I could actually direct a follow-up, last question, to you, are you still able with the pausing of the plan -- the optimization here in Q3, are you still able to satisfy demand for your customers for both Q3 and Q4 units?

No, we can't satisfy demand for customers at all now or even next year or the year after. I mean, there's definitely an allocation that has to happen. That said, can I meet my goals out of what I need to do in Q3 and Q4? Yes. And my goals really are around -- primarily around quals and setting us up for volume as the production capacity comes online.

All right. Thanks, guys.

Ananda Baruah, Loop Capital.

Yes, thanks. Good afternoon, guys, and congrats on all the good news today. Yes, just a couple if I could. Going back to the remarks you guys have made about strategic accounts seeing a real acceleration in urgency, the commercial milestones that you said were the catalyst for that, are those their own commercial milestones in the work with you? Or does that also include you guys hitting commercial milestones in nonstrategic accounts, are they now seeing sort of the efficacy of the product?

Yes, I think there's probably some -- both of that. I will let Cam kind of give some color.

Yes, it's a good question. The way we see it is each of these companies have their own rigorous process for testing our cells and convincing themselves of the validity of the technology in the products. That's kind of its own, let's say, business process that moves along.

What we mean by an acceleration is it's kind of a trigger for them when they see the company go commercial. And so that was the big milestone for this last quarter: commercial product going out of the factory. When they see that, it's a trigger for them and it makes them realize that this thing is going to go.

And then everybody is worried about maintaining a competitive advantage. And so you get into this competitive dynamic where people start to get a fear of missing out because there's a limited amount of capacity. And relative to the opportunity there, that's going to be true for I think some time now.

So that's kind of what we meant by it being a trigger. It's really, I think -- look, battery technology is always very difficult to understand all the little nuances and caveats and details of how does it work and whether it works. When you actually get commercial units out the door to real customers, you've essentially answered all of those questions. So it's a big deal and that's absolutely how many of our customers view the achievement of those milestones.

That's helpful context. And so I guess, would it be -- based on what you guys have experienced internally in conversation sort of in the context of that call it like acceleration and urgency, would it be also your opinion that there is a possibility that they sort of like -- I don't know if the right description is here, but move at a faster pace now, given that urgency to complete some of these production qualifications?

Yes, that's what we are saying by acceleration. We think that the engagements are moving at a faster pace.

And I think we also mentioned maybe in a prior call that -- or we had a press release where one of these large strategics said they want to try to move us across their entire product line as soon as possible. So they are going to be probably pulling on us pretty hard, I would say.

Yes, definitely a sense of urgency. Now, that said, of course, none of those companies will short-circuit their quality and process for developing quality products. But there's motivation to go as fast as possible.

That's helpful. Understood. And then just a quick follow-up here. On the Army announcement, congrats on that. So what would be now the key milestones remaining from where you are right now to going into production volume with them?

Yes, sure. So what we announced today was what's called Phase 3 and Phase 4 of the overall program. Phase 1 and 2, we announced that I guess about a year ago. And the purpose of Phase 1 and 2 was for the Army to test our standard product, verify our claims on performance in terms of energy density, cycle life, safety. Harrold mentioned the nail penetration testing that they do.

And given the results of those tests, they chose to move forward with this follow-on contract. And the purpose of this contract is for us to configure basically our cells in the right form factor and design to fit into the existing GWB, the conformable wearable battery pack. This is the multicell pack that goes into a soldier vest.

So build cells that fit into that, then do the integration with the pack, and then do some pack-level testing. So that's kind of this phase. Next, we would move into essentially field trials with real packs going out in the field on a trial basis with soldiers. And then next beyond that would be essentially volume production.

Awesome. Any care to guess what the next two phases, next few steps, how long that could take roughly?

Our expectation is that it's a few years. The Army has a rigorous process of going through. We will start to see what we consider to be meaningful revenue, though, before we are in full-scale production because there is a lot of work that goes into the field trialing and there's some volume associated with that.

Now that all said, it's not necessarily normal times, I would say, with respect to this type of a program. Part of the reason why they are real excited about what we are doing is the product. But another part of the reason is that this would be domestically produced and there really are very limited choices for companies -- battery cell production companies in the United States.

So we are very well positioned there. And if you just kind of think about what is happening in the world around security of supply and where our current supply chains for lithium-ion batteries are coming from, that's not necessarily the most stable part of the world today. And so you can rest assured that there's smart people on both sides of the aisle at the highest level who are really worried about this and trying to figure out ways to accelerate it.

That's super helpful, Cam. Thanks, thanks a lot. I'll cede the floor there. Thank you.

Marc Cohodes, Alder Lane.

Thanks for taking my call. I have a couple of comments and throw a few questions in there. First of all, probably one of the best calls I've heard from anyone in a couple of years. And given how trying and difficult the world is, unlimited demand is a pretty good thing to have.

So I talked to a couple of these customers, these mega, guys, and, Harrold, can you comment on this? One of them said that without the Enovix battery, our product would not exist. Can you A, you talk about that concept? Are you seeing this with others? And to me when I look at these greater-than-$200 billion enterprises, that would be the likes of Apple, Samsung, Facebook, Tesla, and maybe another one I'm missing. So do those names, do they fit the bill? That's one. That's question two.

And finally, Cam, can you talk about the bake-off in auto that's going on? When can we expect to see something? What that business model looks like? And finally, just really well done, guys. I mean, this is just a substantial improvement on prior calls. I'm very proud of you and proud to be part of this deal.

Hey, thanks for that, Marc. I appreciate the nice comments. You're right. I think if you think about these large strategics, they all have products, some of which we probably know about, some of which we don't, which are sitting in back closets waiting for a battery that's good enough to make them happen. I mean, there might be other challenges as well, right?

But if you think about the last 20 years, product designers have been told time and time again: you can't do this because you don't have enough battery power. So having a battery as good as ours unlocks a lot of those things and make them possible. So some of these we probably ourselves don't even know about; these are pretty cagey companies.

I would say that there's obviously one emerging market, kind of the next computing market of AR, where that product itself is just massively challenged from battery life. And what we mentioned in the past and we've heard from a number of players in that space is that the only battery that they see that really makes that product work is ours.

So that's a pretty strong endorsement for how critical we are to something that's kind of really not out there yet. And we feel excited to be a company that has something that can make that happen and be that powerful in the world. So I think that's one example then. And I will let Cam talk about your second question.

Hey, Marc. I think your question was pertaining to what's happening on the EV front and how do we view that --

No, question two was Apple, Facebook, Tesla, Samsung: do those names fit that greater-than-$200 billion bill? Is that -- am I guessing in that neighborhood properly? I know you can't mention customers, but I can. So am I guessing in the right lakes there? That's my question two. And then question three is about the auto.

Sorry. Question two, what we've said is that we are working with a number of what we call strategic accounts. And we've defined them to be market caps over $200 billion and capable of using our battery and multiple product categories. So it's pretty easy to Google what that means. I think there's a handful of companies that fit that bill.

On the EV side, yes, actually, it's kind of exciting times. We launched Enovix Mobility, which is its own business unit and team, I guess last quarter officially. And that team is chartered with essentially converting the success we've had in this technology development in the consumer market to a real product that we think is extremely well positioned technically to help move the electric vehicle mission forward.

And so as part of that, as you can imagine, we're very actively meeting with worldwide OEMs all over the world. And we think we're going to have an opportunity to be able to kind of choose the right partner for us. And there's a whole number of considerations that go into that, from technical fit to their strategy to culture to what our judgment is of their ability to win. So I think things are moving along there quite nicely.

When can we expect to see something on that, you think?

That one's harder to say just because there's lots of different things that go into our ability to say something publicly. But just rest assured that we're having very interesting discussions now that we hope will play out.

And finally, to the sell side out there, you guys don't have an easy job. But some of you can't even see the forest through the trees and you are so myopic and focused. Look a little broader on what can happen here. Because best product for what these guys do wins. It always has won and it will win. So some of your guys' questions are just beyond insane. So just be a little more broader in scope, I would suggest. Thank you.

Thanks, Marc.

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