Enovix Corp Q3 FY2025 earnings call

• Enovix made significant advancements in developing a silicon battery and strengthened partnership alliances. - Revenue grew 85% Y/Y to $8 million, non-GAAP gross profit $1.7 million with 21% margin. - Secured long-term funding to finance Fab2 and achieve positive cash flow. - AI-1 smartphone battery validated, Honor's lead program in final validation, second smartphone OEM accelerating. - Smart eyewear: over 1,000 packs delivered, samples to 9 OEMs/ODMs. - Manufacturing progress in Fab2 Malaysia with yield, throughput, and cost optimization. - Defense: momentum in multiple geographies, $20M YTD from Korea, global pipeline over $80M. - Evaluating strategic M&A opportunities to accelerate commercialization.

Revenue grew 85% year-over-year to $8 million in Q3. Non-GAAP gross profit was $1.7 million or 21% margin. Shipments from the Korean factory accounted for the majority of year-to-date revenue, with defense and industrial customers contributing the largest portions. In smartphones, the AI-1 smartphone battery was validated, Honor's lead smartphone program entered final validation, and a second smartphone OEM development program is accelerating. In smart eyewear, over 1,000 battery packs were delivered to a lead customer, and samples were sent to 9 other OEMs/ODMs. In defense, momentum continued with $20 million shipped YTD from the Korea facility and a global pipeline of over $80 million.

• Q4 revenue expected between $9.5 million and $10.5 million. - Non-GAAP loss from operations expected between $30 million and $33 million. - Non-GAAP net loss per share attributable to Enovix expected between $0.16 and $0.20. - CapEx for Q4 expected between $9 million and $12 million. - 2026 revenue expected to be back-weighted following end customer qualification and product launches.

• Uncertainties in battery testing and qualification processes for smartphones and other products. - Dependence on successful commercialization of the silicon anode technology. - Risks associated with executing strategic M&A activities and uncertainties in completing such transactions.

Q: Do you have just 1 or 2 smartphone battery customers at this point? And do you have enough capacity to satisfy their needs?

A: We have agreements with 2 smartphone OEMs, both in different stages of qualification. We have a line that when fully facilitized can produce up to 9 million batteries a year next year and have capacity to support customer ramping.

Q: Will Enovix pursue rapidly evolving drone manufacturers requiring improved batteries?

A: Yes, we are getting interest from drone OEMs in aerial and subsea markets, have shipped batteries to defense customers in Korea, and have a robust pipeline of opportunities.

Q: Congrats on naming Honor as your lead smartphone customer. This is a big name in China. Unfortunately, though, it looks like they want 1,000 cycles now. Is this correct? And how much of this was a surprise to the team? And what's required in the design front to achieve that?

A: The requirement for 1,000 cycles has always been there. It's a normal part of the development process. We made a design iteration and are confident the batteries shipped in 4Q will meet requirements. Testing will take 3-4 months and if successful, will launch next year.

Q: I'd like to just continue on the path of the questions around Honor. Again, congratulations. And just trying to understand the cadence of production and orders that we should be expecting. You mentioned the first quarter, we should get more detail around an order and then maybe ramping production in the second. Just your level of confidence that this is sort of the last design change before achieving order status and then production.

A: I'm very confident. My team has done tremendous work, and with close cooperation with the customer, we've made significant progress. If testing goes well, we expect to launch next year with a strong balance sheet and well-capitalized resources.

Q: Could you talk a little bit about the supply chain and preparedness? Certainly, there's been a lot of innovation around some of the anode materials that you guys could potentially use. And can you talk a little bit about what that opportunity set looks like as you work to advance some of the advanced applications that you're talking about here, both in the phone and the military markets?

A: We are an architecture first battery manufacturer that can take advantage of higher capacity/cathodes, different silicon anodes, and electrolyte advances. We are testing various silicon anode suppliers and have multiple sources, allowing us to benefit from material innovations.

Q: Yes, I guess a couple of clarification for me. Raj, was it that you said first half 2026, expect initial production volumes with Honor?

A: Yes, depending on testing, but I'm confident in meeting the 1,000 cycle requirement and expect initial production volumes in the first half of 2026 if testing goes well.

Q: So Raj, on the chemistry change, my understanding is the chemistry reformulation can take maybe multiple months, depending on how big of a change it is, I guess. Can you share like the time line from when you notice the issue to actually solving and integrating the new chemistry? And I guess what's maybe the risk that the new chemistry doesn't quite interact with the rest of the battery and you might need to reformulate it again?

A: We have backups and are prepared. In batteries, you have to run for 1,000 cycles to know if it works. The engineering team is working on it, and we're confident but prepared for multiple chances. It's the nature of battery testing, but once solved, we have it.

Q: So as you're looking into some of these potential agreements, I think ASPs have maybe changed since you guys have kind of last spoken about maybe a revenue breakeven point for the company. So as you guys sort of start to ramp to multiple customers, can you maybe share maybe what that revenue breakeven point is for you guys or anything else maybe on the near-term profitability model, if you update -- if you need to update margins or anything like that, can you share any of that detail now that you guys are sort of moving towards commercialization here next year?

A: An important milestone is getting multiple HVM lines in place in Fab2. Line 2, Line 3 get us to non-GAAP gross margin positive and able to absorb overhead. It's on a non-GAAP basis, and filling Fab2 with equipment for full utilization is when we see adjusted EBITDA positive or cash flow positive.