Amprius Technologies, Inc. Q2 FY2025 earnings call

• Amprius is a leader in silicon anode batteries, with products like SA102 achieving 450 watt hours per kilogram energy density. - In Q2, they released SA102, added dozens of new customers including Amazon, shipped batteries to 93 customers (43 new). - Expanded production at the Fremont pilot line, signed a contract manufacturing agreement in South Korea. - Policy actions in the US promoting drone manufacturing boosted demand, and they delivered sample cells to AV as part of the xTechPrime U.S. Army grant program.

In the second quarter, Amprius generated $15.1 million in revenue, a 34% increase from the first quarter and a 350% jump from Q2 2024. Product revenue contributed $14.5 million, with development services and grant revenue totaling $0.5 million. 86% of revenue was from outside the United States, and over 90% came from the aviation sector (driven by the drone market), with the remaining from the light electric vehicle sector. SiCore shipments saw a greater than 450% increase from Q2 2024, and SiCore is gross margin positive, contributing to the first positive gross margin.

• Anticipate more customers moving from qualification to revenue stage in Q3. - SiCore is driving revenue growth and gross margin improvement, expecting continued gross margin expansion as revenue scales. - Adequate cash reserves, low burn rate, and at-market sales agreement provide flexibility for future growth.

• Uncertainties in domestic and international macroeconomic environment. - Lumpy revenue from light electric vehicle sector due to varying product introduction cycles. - Dependence on contract manufacturing partners and potential supply chain issues.

Q: Obviously, you've been qualifying with a large number of customers here over the last 6 quarters, as you mentioned, Kang. And certainly, talking about kind of a 12- to 24-month process for qualification suggests that you're reaching near closure with a number of customers to start moving into production. Can you just talk about that process and how we should think about revenue inflection and your ability to support those customers as they move into production volumes?

A: Yes. Let me give you a high level report and I'm probably getting into details. We have -- as you see, we have built a huge customer pipeline. We have various customers at different development stages. So Q2 is the demonstration of the transformation from the qualification stage to the revenue stage. Q3, we anticipate that we have more customers will move from the qualification stage to the revenue purchasing order stage. Tom, do you want to give some even more detail to Colin?

Q: Obviously, you've been qualifying with a large number of customers here over the last 6 quarters, as you mentioned, Kang. And certainly, talking about kind of a 12- to 24-month process for qualification suggests that you're reaching near closure with a number of customers to start moving into production. Can you just talk about that process and how we should think about revenue inflection and your ability to support those customers as they move into production volumes?

A: Yes. Let me give you a high level report and I'm probably getting into details. We have -- as you see, we have built a huge customer pipeline. We have various customers at different development stages. So Q2 is the demonstration of the transformation from the qualification stage to the revenue stage. Q3, we anticipate that we have more customers will move from the qualification stage to the revenue purchasing order stage. Tom, do you want to give some even more detail to Colin?

Q: And then Sandra, on the financial side, you have a pretty impressive shift into positive gross margins here in the quarter. I'm curious how you guys are thinking about your cash needs and the potential for gross margin expansion from here as you scale revenue?

A: Colin, so as we've mentioned, SiCore has been gross margin positive since day 1. And since that is the driver of the revenue growth, we expect that we're going to continue to see over time, favorable movement in our gross margins to continue to get more positive. It may be a little bit lumpy. There are some -- we're still too small to say we're at a steady state for sure. But the growth is primarily coming from SiCore, and that's all greater than the average gross margin. So we should continue to see that to -- see that grow. Regarding the cash, again, with $54 million of cash, no debt and $47 million left on the at-market sales agreement, we're still in the $7.5 million to $9 million of operating cash burn a quarter. And so I think we've got a nice long runway.

Q: Congrats on another strong quarter. You mentioned in the shareholder letter, a pickup in the drone customer engagement. Could you give us some more color on the nature of those conversations, how they're accelerating? And could you also frame the opportunity for us maybe in a dollar content of batteries per drone or maybe market size?

A: Yes. Maybe I can start that out. This is Tom. So Mark, thanks for the question. So we serve loitering drones, Group 1, Group 2 and a little bit of Group 3 drones. There's a taxonomy. Those smaller drones tend to be battery operated. Group 4 and Group 5 tend to be the larger engines as opposed to motors. And we did talk in the call, as you heard, about the enabling a tremendous value with AALTO by being able to stay aloft for 67 days. So our batteries are incredible force multipliers. Every extra minute in the sky increases target engagement chances. It reduces logistical churn. It helps on the military side, commanders hold more terrain -- longer terrain view and reduces cost. It's not just the military, right? We have industrial inspection, think about [indiscernible], dangerous climb up to look at power lines or bridges or utility work. We heard about those horrible floods in Texas. Drones were helping identify folks who needed help and damage. In agriculture, you can trim pesticide use, have more efficient spraying, you can map, you can seed more efficiently. Walmart and others are using drones to deliver parcels and groceries. So it's pretty amazing what's happening here. We don't tend to talk about individual customers or orders. We did talk to our friends at McKinsey, the battery insight team believes that drones worldwide is something like a $50 billion market opportunity today. If you take the battery part of that, it's around 10%, plus or minus, which gives us a total TAM for batteries of our type, round numbers, $4.5 billion, $5 billion.

Q: Congrats on the positive gross margins. I want to ask on the light electric vehicle opportunity. I think you talked about that being somewhat lumpy and shorter cycle. Any way to help us think about potential contribution there and visibility over the next few quarters?

A: So Chip, for the light electrical vehicle, our market primarily in Europe and Asia. So this industry has experienced a revolution because everything from the vehicle design to the battery specification all changed. So we anticipated quite a large change and give us a very exciting opportunity because this new standard, performance standard require high energy and high power. Our battery just fit into it. We have some customers present us a very sizable opportunity those customers from Europe. In Asia, the product qualification time is quite short. So it gave us additional opportunity in the near term.

Q: Can you provide some more detail on that $10.5 million contract with the U.S. government? It looks like the innovation unit. Is this for drones? Or was this the wearable battery program? Just wondering if you could provide more detail what sort of led to that program, other details, like where do you need to build this? Do these batteries need to come from your facility in Fremont? Or can they come from Korea? Just some more detail on that contract would be great.

A: Yes. Maybe I can start that out. This is Tom. So the DIU is about 10 years old. They are an arm of the DoD. They have offices here in Silicon Valley, Boston, other tech centers. They have 3 principal responsibilities to identify high potential technology like our batteries to accelerate adoption across the DoD and to strengthen the national security innovation ecosystems. They received about $2 billion in the recent OB3A bill. So what we're doing is building out our pilot line, both in terms of capability, Sandra mentioned that we're adding the electrode manufacturing capability, the front end of a 3-part lithium-ion factory as well as increasing the capacity here in Fremont. And the idea is to have batteries that are NDAA compliant, right? Basically think of countries that are NATO countries or friendly with us. The $10.5 million is going to cover more than 50% of the overall build-out. We're dedicating resources and CapEx to deliver to that. The pilot line won't be huge, right? It's around 10 megawatt hours a year, but that's all about getting supplying and qualifying U.S. material and getting mostly drones to the first part of your question, all integrated and designed into our type of technology and then making it available in NDAA-compliant countries.

Q: First, for the contract manufacturing agreement in South Korea, could you potentially size the production capacity you now have there or maybe what it looks like relative to the agreements you have in China?

A: Yes. But currently, the capacity, we just have one contract manufacturing partnership in South Korea at this time. The capacity is adequate for what we ask them to do today. This facility not only getting excited by our contract manufacturing partner, also the local government, okay, they really see Amprius technology as the enabler to expand their advanced new generation lithium-ion battery manufacturing base in Korea. So we are working with them. As a matter of fact, this couple of days, I'm working on the plan for the facility expansion.

Q: Congrats on the strong margin performance this quarter. So Sandra, just on that front, should we expect margins to remain in the positive territory, but vary a little bit depending on sales volume, et cetera, but stay in the positive territory for the rest of the year as revenue scale from here?

A: Yes. So that's a good question. So I think we have crossed over officially at the $15 million revenue per quarter line to be nicely positive. I think we'll see some variation, normal variation based on which deals are going through each quarter, but we should stay positive and continue to grow that positive gross margin over time.

Q: Understood. And then your comments around operating costs, as your revenues are scaling, it just seems like there may be some operating leverage coming into play as well. Operating costs, should we expect them to remain steady at around these levels at least for the next few quarters before you see any further ramp in revenues?

A: Yes. Given that we are leveraging the contract manufacturing model, we are going -- I mean, we're 97 employees full time as of the end of June. So we're still really lean. We're making strategic investments in R&D and in sales and go-to-market. But I wouldn't see a wholesale change in our operating expense profile in the foreseeable future.

Q: Just last one, if I can squeeze this in for Tom, maybe. Tom, can you talk about what the pipeline looks like, the opportunity set that you're working on? Are there contracts potentially you may be pursuing that could be in the $20 million, $30 million, $40 million level type of deals? Just trying to get a sense of how big some of these customer interactions could potentially be for the company?

A: Yes. We don't tend to talk about them until the end of the quarters or if they're really large. We'll talk about them mid-quarter. Look, as we said, these are different layers, and there's a different gestation period at each of our customers. There's 320-some-odd that we've served over the last 6, 8 quarters. We'll work them all. We're pretty wide. We want to go deeper. We want to get those design wins. And we're doing that. There are some tools that we've improved to do that. There are some partnerships that we're working on. I can't tell you much more than that at this point in time.

Q: I want to keep goggling around on the production side of things. So the South Korean facility is on the cusp of coming online. You've been making SiCore product in the pilot line at Fremont. I mean, is there a potential for a step-up in revenue win, the South Korean partner brings that line into play and you begin to transfer some of that production out of Fremont to it? And when exactly does that South Korean line turn on? Is that a third quarter phenomenon? Is that a fourth quarter? Is that a first quarter? That's my first question questions. [indiscernible] questions next.

A: Now, we engaged them about a couple of quarters ago. We just finished -- because the -- we just finished the new tooling of the equipment, not equipment -- not all the production lines were ready for Amprius product. So we just finished that. They had a prototype presented to us. I believe we are going to start the manufacturing for our customers next month. So this -- we have a fraction of the customers like to buy the batteries from a specific region. And that's one of the reasons we developed South Korea partnership. In addition to that, you know South Korea knows how to make battery, they are one of the best in the industry. So Fremont will have a very intimate interaction with our contract manufacturing partnership. Tom mentioned earlier, we are going to expand and upgrade our pipeline here. So our manufacturing process here can be delivered to our contract manufacturing facility vice versa. When they develop something unique, will share with our team here.

Q: Is there a chance that as that comes online, that is there -- do you have any kind of pent-up demand that's waiting for that South Korean facility to turn on because they don't want to have the product come from China?

A: No. Korean -- the partner we have in Korea, they certainly can manufacture anything the Chinese is making, for pouch cells. Today, we have not have a cylindrical cell partnership in Korea, but we are in the discussion. But whatever we made in Fremont, made in China, made in Korea, they should be all capable to manufacture our batteries.

Q: Okay. Then my next question is the margin is improving. SiCore has been a tremendous success for the company. It's driving revenue growth. It's driving margin. Can you give us some kind of ballpark mix of the revenue between SiCore and SiMaxx this period, maybe what was in second quarter of '24?

A: Yes, Ted, we don't break it down. We just break it down by product. But it's fair to say that the majority of our growth is coming from SiCore.

Q: And then with the expansion of the Fremont line, you commented that you're going to spend some more money relative to maybe what was in the plan about a quarter or so ago. The government is going to provide you, call it, $10 million and then you're going to put the other half. How do we think about how this plays out within the financials? Like when we think about the actual CapEx numbers that we're going to be putting in our models for cash flow, what are those numbers? And how does it play out?

A: So what we're contributing is really dedicating resources that we have that are working on this important initiative to diversify our supply chain and expand manufacturing within Fremont and some funds for equipment and build-out. So the DIU contract is over the next 6 quarters is funding the majority of the effort of this project. So our portion is a fraction of the $10 million.

Q: Okay. But so you would get the money in and then you would spend it. So -- I mean, I assume we would still see a pickup with regards to just in your cash flow statement for CapEx. But at the end of the day, it's really just flowing through your financial statements from the DIU. Is that what I'm saying, just to understand how it goes through the model.

A: Yes. So I think revenue recognition for a contract like this is a little bit tricky. We're still working through the details. But the overall -- it's fair to assume that it's going to come through as revenue, and we're going to show the cash going out in the statement of cash flows.

Q: And then my last question, they're offering this to你 and helping you out. There's clearly a desire by this administration, honestly, even the previous administration to bring well the battery manufacturing into the U.S. and also just strategic industrial activity into the U.S. I would say that the fact that you've got this funding shows that you are strategic. Is there any discussion or any opportunity for you to go into partnership with the government to bring to fruition the work you've done in Colorado?

A: So we're in regular communications with a number of key stakeholders. And one of the things that we've been clear about is that our ability to move forward with the design and the capacity in Brighton is really dependent on a number of macro things going on, not the least of which is tariffs, government incentives, supply and demand. At this point, we have more than enough capacity. We would be over $1 billion in revenue with the 1.8 gigawatt hours that Kang has already secured for us. And so we've got more than enough capacity to serve the foreseeable future. And we -- but we are keeping those lines of communication open if something does change that would make it more economically viable to move forward with Brighton at this time.