Release Date: July 31, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Enovix Corp (ENVX, Financial) delivered Q2 revenue of $3.8 million, which was above the midpoint of their forecast.
- The company announced significant commercial successes, including agreements with a leading California-based technology company in the XR market and a Fortune 200 company.
- Operational progress in Malaysia, with the Agility line producing first runs and the high-volume line clearing key milestones.
- Strong engagement activity in the smartphone market, working closely with top OEMs and achieving key milestones in development agreements.
- Early prototypes of EX.2M batteries validated high energy density, showing promising results for next-generation chemistries.
Negative Points
- Non-GAAP EBITDA showed a net loss of $23.1 million, although it was above guidance.
- Non-GAAP EPS came in at a loss of $0.14, also above guidance but still a loss.
- The ramp-up in Malaysia took longer than planned due to rigorous specifications, causing delays.
- High fixed costs associated with exiting expensive California manufacturing operations.
- The company faces uncertainties related to geopolitical factors and tariffs, which could impact future operations and costs.
Q & A Highlights
Q: What measures have you taken to prevent Chinese companies from pilfering your technology, and how will increased U.S. tariffs against China affect Enovix?
A: We have a strong patent portfolio and trade secrets developed over 16 years, which we believe protect our technology. Regarding tariffs, it's difficult to predict geopolitical impacts, but we are seeing increased interest from customers for North American-made batteries, which is a positive trend for us.
Q: What is the status of EX.2M and EX.3M in terms of timelines and capacity? What is the strategy with the Olympic partnership?
A: We have created early samples of EX.2M and validated high energy density. We are confident in our roadmap for next-generation batteries. The Olympic partnership is part of our strategy to build out our channel for various markets, including smartphones, IoT, and industrial applications.
Q: Can you provide context around the broadening engagement across verticals, including IoT and auto markets?
A: Our battery technology, initially developed for the demanding smartphone market, is now being applied to other markets like XR and IoT. This is a natural progression as the toughest requirements are met first. The auto market is particularly exciting, with two OEMs validating our technology for fast charging and swelling control.
Q: Are there any potential collaborations with semiconductor companies to optimize device-level performance?
A: Yes, we are working closely with semiconductor companies to ensure our batteries integrate well with processors and power management systems. This collaboration is crucial for optimizing battery performance in devices like smartphones and IoT products.
Q: What are the initial yields on Fab 2, and how should we think about ramp and scrap expenses for the rest of the year?
A: We aim to start yields at the level we achieved in Fremont and improve from there. Our focus is on getting the Agility line to the right level for sampling EX.1M and preparing for high-volume production next year. Scrap expenses will be managed as part of our overall cost reduction efforts.
Q: Can you provide more details on the milestones and timelines for smartphone OEM engagements?
A: We plan to sample EX.1M from our Malaysia factory in Q3. Customers will test these samples and provide feedback on battery dimensions and specifications. We aim to adjust our tooling and ramp up production for next year's phone models, with formal agreements in place to guide this process.
Q: Can you elaborate on the newly announced IoT agreement with a Fortune 200 company?
A: This agreement involves replacing batteries in an existing product with a large installed base. Customers are willing to pay a premium for our energy-dense batteries, and the agreement includes milestone-based payments to support our R&D efforts.
Q: How does the diversification of suppliers in the industry impact Enovix's strategy?
A: We are seeing increased interest from customers for North American-made batteries due to geopolitical uncertainties and tariffs. This trend provides us with a competitive advantage as one of the few companies capable of producing high-energy-density batteries for consumer electronics in North America.
Q: What are the margin potentials as you ramp up customers in 2025 and 2026?
A: Our IoT customers are willing to pay a premium for our technology, which supports healthy margins at scale. This validates our long-term financial model and margin targets.
Q: How should we think about the revenue ramp and margin profile for the second half of the year?
A: Revenue growth will be driven by both our conventional business and new IoT revenues. While gross margins may be impacted by increased depreciation costs, overall cost reductions will help improve our financial performance.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
