Enovix Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
February 19, 2025

There are 13 speakers on the call.

Operator

you for standing by, and welcome to the Inovix Corporation fourth quarter twenty twenty four earnings conference call. Currently, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. As a reminder, today's program will be recorded. And now, I'd like to introduce your host for today's program, Robert Leahy, Head of Investor Relations.

Operator

Please go ahead, sir.

Speaker 1

Thank you. Hello, everyone, and welcome to the Novix Corporation's fourth quarter and full year twenty twenty four financial results conference call. With us today are President and Chief Executive Officer, Doctor. Raj Shlohri Chief Accounting Officer, Christina Truong and Chief Operating Officer, Ajay Marathi. Raj and Christina will provide an overview, and then we'll take your questions.

Speaker 1

After the Q and A session, we'll conclude our call. Before we continue, let me kindly remind you that we released our fourth quarter twenty twenty four shareholder letter after the market closed today. It's available on our website at ir.innovix.com. A replay of this video 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.

Speaker 1

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 those factors that could affect our future financial results and business, please refer to the disclosures in today's shareholder letter and our filings with the Securities and Exchange Commission. All of our statements are made as of today, 02/19/2025, based on 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 the generally accepted accounting principles.

Speaker 1

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'll now turn the call over to Raj to begin. Raj?

Speaker 2

Thank you, Rob. And thanks to everybody for joining us today. For our format today, I'm going to start with a recap of our recent results and some of our recent milestones, before I turn it over to Christina for financials and outlook. I'll have a few closing comments, and then we'll take your questions. We had a very proactive 2024, especially q four.

Speaker 2

To recap our recent achievements, first, our revenues in the fourth quarter were $9,600,000 near the high end of our guidance range. For the year 2024, total revenues were $23,100,000 up $7,600,000 up from $7,600,000 in 2023. Second, we completed our top manufacturing and product objectives for the quarter by completing site acceptance testing of our high volume manufacturing line and shipping our first samples of EX2M to customers. Third, we shipped early engineering samples of our leads to our lead smartphone OEM with the results confirming the critical safety tests are all passing. Additionally, we received the cell dimensions as a continuation of the agreement we made with them.

Speaker 2

These dimensions are actually of the cell that they expect to be shipping in 2025. Now, we're on track now for commercial smartphone launches in 2025 pending successful completion of the customer qualification. Fourth, in line with the agreement we announced in June 2024, we also delivered our first battery packs of our first custom cells from Malaysia with packs built in our Korea facility. In addition, we secured a purchase order from a custom battery from a second marquee smart eyewear customer. The ramp of Fab two in Malaysia in 2024 stands out as a pivotal accomplishment for the company.

Speaker 2

We managed to complete SITF for HVM line in just one year after our first tools arrived. Yields are now well beyond the final levels we achieved in Fab one, and we have incremental targets in place throughout the year, and we believe that we believe will ensure readiness for smartphone mass production in the fourth quarter of 'twenty five. We now have multiple customer audits going on, serving as a strong testament to our manufacturing readiness and our customers' interest in using our products. While we remain focused on smartphones, we're also prioritizing segments where major battery constraints, our supply chain requirements are creating a strong competitive advantage for our technology. Recently, smart eyewear emerged as one of these segments and we are now in the process of developing custom cells for marquee customers in this space.

Speaker 2

Another market that recently emerged as a unique growth opportunity for us is the defense industry, where we recognized a significant portion of our 2024 revenues with conventional graphite battery products. Since the U. S. Elections last November, we observed an increase in inbound interest from drone manufacturers and defense suppliers seeking battery solutions that comply with allied country supply chain requirements. Earlier this year, we secured a sample purchase order from one of these suppliers for autonomous AI systems.

Speaker 2

While these developments are still evolving, we are optimistic about the potential upside from these. And on the product front, it's also been a very productive 2024 and Q4 for us. We successfully completed testing of EX one m and performance results indicate that we don't track to meet targets of energy density cycle life and fast charging. For EX two m, we delivered early engineering samples to OEMs across both smartphone and IoT markets, and we received positive feedback that the EX two ms energy density is meeting customer targets. And looking ahead, we've officially kicked off the design phase of EX3M incorporating feedback from our lead OEMs to ensure environment with their evolving requirements.

Speaker 2

Now with that, I'll turn it over to Christina for the financials. Christina?

Speaker 3

Thank you, Raj. All the relevant financials are in our quarterly report and our shareholder letter. So I will speak from a high level and then provide outlook. We deliver Q4 twenty twenty four revenue of $9,700,000 above the midpoint of our guidance. Non GAAP EBITDA came in at a loss of $11,700,000 dollars above our guidance of a loss of $19,000,000 to $25,000,000 And our non GAAP EPS came in at a loss of $0.11 also above our guidance of a loss of $0.15 to $0.21 We ended the quarter with roughly $273,000,000 of cash and cash equivalents.

Speaker 3

CapEx in Q4 was $16,400,000 and cash used in operation totaled $16,000,000 dollars Our balance sheet is strong, giving us a runway for option and optionality for funding additional HVM lines. Now for our guidance. For the first quarter of twenty twenty five, we forecast revenue of 3,500,000.0 to 5,500,000.0, an adjusted EBITDA loss of 21,000,000 to 27,000,000, and a non GAAP EPS loss of $0.15 to $0.21 Now I'll turn back to Raj for close. Raj.

Speaker 2

Thanks, Christina. As you can see, twenty twenty four was a big year for us. We made significant strides by launching new high volume manufacturing line in Malaysia with custom battery cells already shipping from the Agility line and high volume production slated for 2025. We also focus on building strong customer demand across key markets, including smartphone and IoT OEMs, while we continue to drive innovation and operational excellence. With that, we can go to the questions.

Speaker 2

Operator?

Operator

We will now begin the Q and A session. Please note that this call is being recorded. Before we go to live questions, we're going to read the two most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is regarding policies and tariffs implemented by the new administration, what are the potential implications for Innovix's current and future business operations and prospects?

Speaker 2

Yeah. Thank you for the question. As I mentioned in the prepared remarks, we are actually getting increased interest since last November for our batteries, from, from defense and other industrial customers in The US. As a reminder, we our factories are actually in in Korea, and and also in Malaysia, which is actually very favorable to to shipping batteries into The US. So it's been a we don't see much effect on the tariffs at this point.

Operator

And the second question is, can you lay out the current guidance for adding lines? What is the current capacity? When will you begin ordering equipment? And how long will it take to install any additional lines?

Speaker 2

Yeah. I'll I'll take a shot at the question, and I'll have Ajay add more color to it. You know, firstly, we are super excited that we completed the the asset here for high volume manufacturing line. The factory we have in Malaysia, we have the ability to add up to four lines there, and we put in one line, and that's the one we completed Aseti on. In terms of current capacity, I'll let Ajay comment, and then I'll talk about how to add additional lines.

Speaker 4

Thanks, Raj. Good question. The current line one, Gen two line one, which is installed in our Malaysia fab is running and was bought off in SAT at $13.50 UPH, just as a reminder, which is equivalent of roughly 9,500,000 to 10,000,000 batteries a year. Now this is fed by what we call farms in zone one, which is dicing and zone four, which is testing. Now we're adding capacity to zone one as, we see the indications, from the market as to how much volume do we need to support.

Speaker 4

So that's where the capacity lies. And the way we are looking at adding lines is basically long lead time items, such as, you know, various different items in the line, which are on the, you know, used as control systems on the manufacturing line. We are ordering and keeping them as inventory at our suppliers. So this, makes us gives us the ability to shrink the timeline as to when we can add second, third, fourth line. So that's how we are looking at this capacity.

Speaker 2

Yes. Thank you, Ajay. Nothing else to add.

Operator

We will now go to the queue. If you would like to ask a question, please use the raise hand feature on your screen. If you have dialed in via phone, please use 9 to raise your hand. Questions will be answered in the order they are received. Our first question will come from Jed Dorsheimer with William Blair.

Speaker 5

I guess, first one, just the drone purchase order. I'm curious, just trying to get a better understanding of the growth profile of this customer. I think you mentioned it's a billion dollar, that they're doing a billion in revenue. And I think if memory serves, they just hit that. So I just want to make sure that that customer is kind of on that am I thinking about that customer in the right way?

Speaker 5

And maybe you can comment on, is the defense is coming in better than expected, how you're thinking about that? And then I have a follow-up too.

Speaker 2

Yeah. You know, we can't really comment on on which customer. But one thing I can tell you is we are seeing a lot of interest for the batteries that, that we are making in in our Korea facility because they are high rate batteries, and they're very good for these kind of applications where you need the fast discharge and high rate high rate of discharge. And, the market is growing. It's hard to put an exact number on it.

Speaker 2

It's early stage in terms of qualification, but, hopefully, as the qualifications go through, we'll be add able to add more color on how we see that business going. But we are getting multiple inquiries, for those batteries from different customers now in The US.

Speaker 5

Great. And then just as my follow-up, just pivoting to the commercial smartphone, you're now starting to build, you know, a backlog of, that customer base. So I was wondering if you could just rank order the cell phone customers, in terms of the pipeline and the commercialization stage, if you could just remind us of that. Thanks.

Speaker 2

Yeah. I mean, we had mentioned that, we have sampled, you know, seven of the top eight customers, and another one just placed an order for samples from us. Clearly, showing, you know, interest is building up in our products and what we can build. We talked about two agreements that we have with two customers, and they're both progressing. One of them, we actually received the you know, after passing the milestones, and last time I talked about getting a getting a payment for the milestones, we now got a very important, milestone next milestone, which is, we got the exact dimensions of the battery that will be in the phone this year.

Speaker 2

So that is a huge step because now we understand exactly what it is. Just to remind the viewers, what we sampled was a standard battery that we made here, of a standard size. But now we got dimensions of the battery, and and this is north of 7,000 milliamp hours, so a sizable battery. But again, the space is still constrained in the phone. So our energy density clearly adds a value there.

Speaker 2

And next stage is, you know, we expect that to, you know, get qualified with our technology in their phone. And we expect to get other custom cells from the following customers, you know, in that order. And again, this one particular battery that we are making, you know, for this customer, it could go into multiple models. Typically, you know, these batteries go into multiple models within the segment of the market. So super excited by the progress we're making.

Speaker 2

It's a study and, you know, gradual and thought through. So

Operator

Our next question will come from Ananda Baruah with Loop Capital. Please go ahead.

Speaker 6

Hey guys, yes, thanks for taking the question. Really appreciate it. I guess, Rajnath, Jay, is sort of sticking right there. Can you remind us, for EX2M and you mentioned RajnEX three M, two things, like number one, like the capabilities of each model and then when do you think each of those models like get into the marketplace and get to volume and anything you can say about the volume that each of those can bring to the company would be awesome. Thanks.

Speaker 2

Yeah. And the the way to think about this is, you know, we we have, we've made a choice of, of different anodes and cathodes and electrolytes and so on, which is our first EX one m product, where we got requirements for the customers and we sample them. We're now getting feedback from them on, you know, we like this part. We want you to increase this part. We want you to kind of, you know, trade off of energy I've said this before, trade off of energy density versus fast charge, versus cycle life, versus temperature performance and so on.

Speaker 2

We are now optimizing that, to meet the customer requirements. Meanwhile, we make a step forward in choosing a newer set of materials that give increased energy density, and that's the X2M. And then we make more advances in terms of both materials and also our architecture in terms of reducing the amount of inactive materials so that we can get more energy density. And that's the X3M, which we just started. In terms of volumes, it's difficult to comment on volumes at this stage, because it'll depend upon which customers go to product production first, how many models we get designed into, how quickly we can ramp that.

Speaker 2

And that I think towards the later part of the year, we'll be able to comment more because at this stage, they're all in different stage of qualification and we have visibility into one of the models, but there's a lot more behind that. So it just takes time to be able to answer that question more precisely.

Speaker 6

Okay. That's awesome. And I guess just as a follow-up, just Ade, just make sure we fully understand the context around sort of the four lines. Is it line one, you mentioned 9.5 to 10. Is there anything implied in in your description of that that the 9.5 to 10 can get filled in a sort of, reasonable amount of time, you know, and then you're sort of sort of speaking to the expansion of the lines, then you said you're sort of, sort of your ramp ride ramp lines as as things progress?

Speaker 6

Or is it, you know, you can do sort of 9.5, 10 to start per line? I think you'll probably tweak that up from there just with efficiency gains. But even inside of that line is is sort of as things progress, is that also wrapped into the the line one as well? Just context around that. Thanks.

Speaker 4

Absolutely. Thanks, Aranda. Yes. The line one is, just a reminder, is is what we call the universal line. So it is a line which is capable of running equally efficiently the smaller cells, which we are also feeding into the ARVR market.

Speaker 4

I think Raj alluded to that in his prepared remarks, as well as the large cell, which we are now working on, you know, custom cell, which is more than 7,000 milliamp hours. So it can handle all of it. The capacity kind of remains the same. Line two, three, four, when we will order that all, you know, depends on the customer qualifications cycles as Raj also said. And whatever improvements we do, actually the focus from line two to four is going to be optimizing the line for also CapEx spend per line as well as the speed.

Speaker 4

And we will do the learnings and backward make it backward compatible to also the line one. So universally, we can ship and make and ship from any of the four lines that, that Raj talked about.

Speaker 2

Yeah. And one other thing I don't know, maybe just to remind you guys, you know, as Ajay mentioned, when we built the first line, we built what is called a universal line, which can go from very small batteries to much bigger batteries. That's a more expensive line, but gives us the flexibility because we're not sure exactly where the demand would be when we build that line. As we get, more and more visibility into, you know, like, these kind of custom cells, we can optimize our lines more, to that size cells and not have so much flexibility in it, which optimize the cost of the line, which increase the throughput of the line. So which is kind of like a natural evolution of how you do manufacturing as you understand the product, you know, demand better, we optimize it for both cost and speed.

Speaker 2

Right? And that's kind of how this is gonna go.

Speaker 6

Thank you, guys. Appreciate that.

Operator

Our next question will come from Colin Rusch with Oppenheimer. Please go ahead.

Speaker 7

Thanks so much, guys. You know, you know, getting to the 7,000 milliamp hour cell, it seems like a a bit of an acceleration on some of the roadmaps. Can you talk a little bit about how quickly, those specs are are changing and how you're seeing that translate into potential pricing, appreciation for the company.

Speaker 2

Yeah. I mean, it's a really good question, Colin. I mean, I, you know, I mentioned, I think, maybe, probably think, like, 2023 when I mentioned we are seeing a lot of AI coming to the edge that will drive a lot higher demand for battery, because those applications consume a lot of, lot of energy. And, and I'm pleased to say that that's coming through today. You know, what is happening now is the Gen AI applications consume so much battery and every app and there's so many apps now running on the phone that consume that that the customers are having to put higher and higher capacity batteries, much higher than we expected.

Speaker 2

You know, 7,000 plus that we saw today that we are working on. I see that, you know, getting even larger over time. And, clearly is a good tailwind for us in ASP because when you you have to deliver that kind of capacity on a limited form factor because the form can't get bigger, which means the energy density is what drives that and, and we get a premium for energy density. So we this is a good, good tailwind for us in terms of both ASP premium and margin expansion as these trends continue.

Speaker 7

That's super helpful. And then I guess my follow-up here is really about the competitive landscape. Obviously, there's been a lot of capital invested in in materials and along with different electrolytes and rebalancing different cell structures. I'm just curious how quickly you're seeing competitors move and how intense that environment is for you guys as you go through this qualification process with with all of these smartphone makers.

Speaker 2

Yeah. I mean, our competition continues to be incumbent graphite batteries, which have, you know, kind of doped the graphite with some amount of silicon. You know, I think we mentioned we saw 5% to 10%. But in a big cell like 7,000 milliampers kind of range, if you put more than that, we are seeing that the swelling is, it becomes becomes too much. So you can't really keep doing that.

Speaker 2

Our constraint and our innovative architecture, we use % active silicon. And as far as I know, we are the only ones that who are able to put % active silicon. And this is validated by our customers and also validated by the people who supply this, this silicon material. They they do, they're excited to work with us because we're able to use % of their material. So it's, it's a competitive advantage we have in with our architectural approach, and, and I hope, hope to get this into product soon.

Speaker 8

Thanks, guys.

Operator

Our next question will come from Bill Peterson with JPMorgan. Please unmute and ask your question.

Speaker 9

Yes. Hi. Thanks for taking the questions and recognizing your focus on smartphones and maybe some of these emerging IoT applications. But I I wanted to come back to this defense opportunity. Can you speak more on the format or the size of the batteries?

Speaker 9

And I guess how much can the Korean site support in terms of, I don't know, whether it be megawatts or revenue? Just trying to get a sense for how fast you can grow into this market. And I guess if it were to be of interest, how fast could you expand your capacity?

Speaker 2

Yeah. You know, we we have capacity now in our, in our Korean factory, you know, to support some of these for now. And, we have space available nearby, and we can expand that, and, and build more capacity. I mean, the good news is that as these things start getting qualified, we get visibility into into what this demand could be like, you know, in next year because it takes, you know, year or you know, or so to get these things really qualified into production. And as we start getting into quals, in these opportunities, we will and we can, you know, expand, in our facility there.

Speaker 2

It's a very nice site. It's a nonsense and we have opportunity to grow there. So we're excited by that.

Speaker 9

Yeah. Thanks for that. And you you had in your press release about the EV, you're advancing development agreements with the two customers. I had a sense that like that would have already been done. So I guess what areas remain to be resolved, I guess, before anything official happens?

Speaker 9

And I guess maybe to that point, has any of the joint development work happened thus far? I know these are long dated, but are there any key milestones we should be looking for this year? Or is the work really going to begin in earnest in 2026 and beyond?

Speaker 2

No. Absolutely. I mean, work is ongoing. I mean, you know, we have some, we are able to, now get the materials from the from these, EV makers, and we have them in our Malaysia factory because, you know, as you remember, we we shut the factory down here. Originally, we were thinking of doing some of that work here, but we would call to Malaysia, and IJ was able to create some space there because these are different materials there to be handled a little differently.

Speaker 2

So we have an area there where we are doing the EV work. And we're now able to dice that material and, you know, we're working on making those into cells to prove out the advantage of our architecture even in the EV space. So stay tuned for that. I think this year, we should have some updates on that.

Speaker 9

Thanks, Raj.

Operator

Our next question will come from George Tsanarikas with Canaccord. Please go ahead.

Speaker 8

Hey, good afternoon, everyone. Thank you for taking my questions. I just had a question about the smart glasses business. I think you mentioned in your press release that you expect commercial shipments to commence mid year. And in 2024, you had a couple of press releases, one that mentioned a California company where you had an ARVR, I think, mixed headset, and another one in December that was another potential customer with a similar sort of device.

Speaker 8

So can we confirm that this commercial purchase order is for one of those two companies?

Speaker 2

Yeah. These are for actually, from both the companies. We have we have purchase orders. And, in fact, I I do have the sell here. If you know, I just want to show this to you guys since we are on video.

Speaker 2

This is actually the the cell that we made that goes into the legs like that. And, super exciting. You see in our investor, we are able to not only make this cell, but we are able to package it, with the battery management and so on into a pack in our courier facility. And we were able to deliver that to the customer. So it's a tremendous progress from the time we got the purchase order to actually, you know, get some early samples out from our new factory.

Speaker 2

So and and the results look really good. And, you know, like I said, we're gonna continue to make that. And I I'm I'm kind of bullish on this market as a market that, that, has a lot of potential in the out years, particularly because of the of the, you know, the user interface problem has been really solved well with GenAI. You can speak to these devices. It's always clunky how to interact with the pair of glasses before.

Speaker 2

That problem, you know, I think is is resolved pretty well. And, and also, you know, I was at this AR conference, I think, last month or earlier this month. You could see the advances made in the waveguide optics and the brightness of the projectors, and the miniaturization. You know, I've been in this space since I was at Qualcomm, I don't know, maybe decade ago. But, it looks like a lot of progress here, so we are pretty optimistic about that.

Speaker 2

And also the the sales we make are a huge advantage because there is not that much space to put batteries in these glasses, and the applications demand a lot of performance from the battery to go for an all day use. That's the reason we are seeing tremendous interest on our technology in this space. It'll take some time to get to, you know, multiple tens of millions, but it's a good place to start.

Speaker 8

Thank you. And also on manufacturing,

Speaker 10

you since the

Speaker 8

last time we spoke, you've completed your site acceptance test and you expect to begin production in earnest in the fourth quarter this year for smartphones, some point this year for the devices you just mentioned. What are the bottlenecks to being confident from here that you can scale that production? What obviously, you've been, I'm assuming, tinkering with some of the lines. And so I'm curious as to what has to be solved between now and then to really gain confidence that you can make these the batteries in the millions? Thank you.

Speaker 2

I'll take a quick shot at it, and then I'll let Ajay speak. We we are very pleased with the the progress that Ajay and his team has made. You know, we we we see sales coming out. We're shipping them to the customer, in the you know, now the factory is going through ISO audit, which will be a big step, and it's done in the next next few months. You know, I think really the the work now is, you know, producing these at volume and scale and, you know, getting the UPH and yields up.

Speaker 2

I guess, maybe Ajay can comment somewhere.

Speaker 4

Absolutely, Raj. So, yeah, the proof points obviously are are yields and, you know, how fast can we ramp on this line. The line is qualified. There's really no technological bottleneck, if you will. We are doing this with different material sets as Raj pointed out, EX1M, EX2M at the same time, depending on what the customers are needing in terms of performance, which one is more important for them versus the other.

Speaker 4

And therefore working with all these materials and getting the yields higher, continuously learning and getting into the ramp mode. And, yeah, we are well on our way for the ramp to happen in the second half, which is exactly when we are expecting some of these things to come to fruition in terms of customer qualifications.

Speaker 2

Yeah. Maybe one other thing I'll add is, as we see this demand now, these are for slightly different shaped cells. So, you know, big cell of certain form factor, a small cell like this. So so some of the work Ajay's team is doing is how to get the cycle time down so we can quickly make different cells on the same machine, but what's the tooling to be done? That that's gonna be something that we'll continue to work on.

Operator

Our next question will come from Derek Soderbergh with Cantor. Please go ahead.

Speaker 10

Yeah. Hey, guys. Thanks for taking the questions. Raj, did you say that you had two purchase orders from AR companies? I know the first one, you guys said you're gonna gonna commence shipments midway through this year.

Speaker 10

Is the second one for a commercially planned device, was that for sample orders? And then just given the, the density benefit that you can deliver with, you know, these AR devices, what's the, average selling price you think you can get for this form factor?

Speaker 2

Yeah. Yes, we do have purchase order from both the, both the customers. And, and, again, we are we are in the process of getting the exact dimensions and making those exact dimensions because they're both slightly shape. The ASP premiums are actually very nice in this market, because of the of the how much of how important the battery is to the life of the of the products. I mean, we you probably see in investor deck, we put some material on the advantages of our product versus what's commercially shipping.

Speaker 2

So you can see that that translates to, a nice ASP premium. I can't exactly comment on the numbers, but we are quite pleased with that business. And the other thing is our ability to make full packs. I've mentioned this when we acquired a Raujjet company that this is gonna be important to us. And, because when you make a full pack, there's also an ASP premium of instead of just selling the cell.

Speaker 2

That is something that also is, is playing out nicely, which is the reason I think I mentioned at that time why we acquired that company. One of the reasons in addition to the coating capability.

Speaker 10

That's helpful. And then, just related to one of the first questions, you know, when you guys wanna add, say, high volume line number two, can can you talk about sort of in months how long it would take to procure and install kind of that second HPM line two? It feels like the demand for some of these air devices could be, you know, coming in pretty soon here. You know, how fast could you, know, order a second high volume line and and turn it on?

Speaker 2

So before we answer that, let me tell you this. The demand will come, in in in next year. Right? So again, we we will make some sales and give it to them, but the qualification time line takes the time line it takes. So it's kinda important to understand, we are talking about 26 demand now, and, and we will plan capacity accordingly, and Ajay is doing that.

Speaker 4

Yeah. Just to just to add to that, as I mentioned earlier, right, we are taking the approach of taking the all the long lead time items because not all the components that make up the line have the same amount of lead time. So there are some longer lead time items which we are told working with our suppliers. We have started stockpiling them at their place on their time, but they're taking the risk on us, which is really good way of handling of how quickly you can set up this line number two and then line number three. So we are trying to always look for ways of shrinking that timeline.

Speaker 4

The first one took whatever time it took. Second one will be significantly lesser and our ability to quickly ramp that into the production is also going to improve over

Speaker 10

time. Got it. Thanks, Ed.

Operator

Our next question will come from Gus Rejal with Northland Capital Markets. Gus, will allow you to unmute.

Speaker 11

Yes. Thanks for taking my questions. Just real quick on the production coming out of Kokam, it sounds like it's tailored to military applications and high rel. And I'm just curious, is it you know, more of a standard lithium ion battery or, you know, what what sort of sets it apart for the military applications?

Speaker 2

Yeah. So the the the ROUT JET acquisition that we made is standard lithium ion battery, except it's a high discharge rate battery. So for example, think about something that powers moving things, you know, like drones and so on. So when you have a mechanical object that's moving, you need to discharge at a much higher rate, And that's one of the things they can do, at this part of company can do for us. And they can also do different shape and size cells, that can go into some of the consumer electronics.

Speaker 2

So they have two, three different variations of products that we can do there. The military ones are high rate big cells.

Speaker 11

Got it. Very helpful. And then just on line one, you said that the UPH is thirteen fifty. That's, I believe, an instantaneous throughput. You know, can you talk about, capacity utilization with just one line?

Speaker 11

You can't commit that volume to your customers. How should we think about the utilization in the first year until line two comes up and you can bring that up?

Speaker 4

Yes. Good question. That'll depend on how how quickly the qualification cycles are running through with several customers now in play. And we I mean, a good manufacturing company would look at it in terms of how much are you filling the line up so that you can start ordering those, you know, longer lead time items first, followed by the other components to make up the line. So it's all like, you know, gradual feedback directly coming from our customers' qualifications actually.

Speaker 4

So that's where I would leave it.

Speaker 11

Got it. Thanks so much.

Operator

Our next question will come from Sean Milligan with Janney. Please go ahead.

Speaker 12

Hey, Raj. Thanks for taking my questions. Can you talk to, like CapEx outlook for this year as it stands today? What do you expect CapEx to be? And then sort of underlying assumptions there in terms of how many lines are you ordering long lead time items for?

Speaker 2

Yes. We don't really give the full guidance for the year, but maybe Krishna, if you want to comment on that a little bit.

Speaker 3

So so as Raj said, a lot of the long lead time items are ordered by our equipment vendors and on their dime due to relationship and whatnot. But for our 2025 CapEx, we have about between 30,000,000 to 40,000,000 currently budgeted.

Speaker 12

Okay. And then, Ajay, on the next line, like, line two, do those economics fit the slide deck, the $16.50 UPH that's in the back of the slide deck? Is that sort of the expectation on the next lines?

Speaker 4

Yes, that's correct. That's the UPH is always measured in equivalent of a cell size. So as Raj alluded, we are now obviously getting cell sizes which are significantly larger, which is really good for the value that we bring and the ASP and everything attached to that. But the, yes, sixteen fifty is the goal for a Diablo size sell, which we have talked about. So it will vary based on which size cell goes through the line.

Speaker 12

Okay. And then, Raj, I know still qualifying some of those early samples with the cell phone customers. But there's a slide in your presentation that talks about the top cell phone OEMs. The average model size is around 3,500,000 units per year. Just curious, like in the two that you're in advanced stages with, do you have visibility into the potential models that you'd be in?

Speaker 12

And just curious if those programs are expected to be like below, at, above that kind of average model size that's mentioned in that slide?

Speaker 2

Yeah. So one of them, like I said, we actually got the specific spell dimension, so we have a little bit more visibility into where it would possibly go. But one thing to remember is that, you know, in the in the Android market that we're going after, initially, each cell phone model when you talk about a model, the model has a certain, how should I say, features for you, if you will, certain cameras, certain display, certain process, certain memory configuration, so on. But there are variance within that, you know, for example, the customers may choose to take that model, change some software features, and ship that into India, for example, and maybe change a few other things, ship that into Europe, and maybe some other features and ship that into, you know, Gulf. So so each of so it's we don't have clarity yet on which exactly product we will be in, and that'll come in time as we get closer to production.

Speaker 2

And, and that's typical, and I've I've done this many, many years. That's got quite typical in how it works, so that clarity will come closer to production time.

Speaker 12

Okay. And then just one last one. Can you remind everyone, like, how the the sales cycle works for cell phones? So, like, you you start to get in qualification kind of early in the year and that's for commercial volumes that ship later in the year. Is that sort of the same thought process for 2026 also?

Speaker 12

Or because you're sampling more cells in 2025, would you be in earlier programs in 2026?

Speaker 9

I'm just

Speaker 12

trying to understand maybe cadence in terms of seasonality.

Speaker 2

Yeah. So good question. So so just for I mean, since I get this question quite a bit, I'll I'll just, talk one more time about how this works. We typically, work with the customers to get from them requirements on what this particular product and the launch timing is. Like, for example, in 2024, we talked to them about what's the kind of phone model that would launch in late twenty twenty five.

Speaker 2

And we get requirements in terms of, you know, cycle life, you know, energy density in terms of size, in terms of fast charge capability and so on. At the same time, they give us these requirements. They're also working on what process they should pick, how much memory should it have, what display they're using, what camera they should use. And we give them a certain standard size cell, the cell that we we've made internally. They test them and then they extrapolate from that what the performance will look like and what performance they need when they fix all the other components in the phone.

Speaker 2

Right? And then they give us the exact dimensions of the cell, which is what we just got now. And then we make that cell and we give it to them, and then they test it along with all the other components which are now frozen. And if everything passes, you know, and everything looks good, then they give us a purchase order to make, you know, multiple, you know, volume production of that cell. Now that one particular cell could now go into multiple models in '25 and in '26 too.

Speaker 2

So that it's not like it's only stops at '25, because, like I mentioned, there could be different phone models that can be launched in different parts of the world, and that could continue through '26, for example. And then when they start thinking about what's gonna launch at '26, you know, if there are some changes to that cell, they'll give us those and we start working on them. So this is gonna be a continuum, if you will. It's not like we make this cell, it goes twenty five done. We make another salad goes twenty six done.

Speaker 2

It doesn't work like that. It's usually a continuum. There'll be some overlap between the phone launches based on the regions they're launching, based on the volume they're launching. That's typically how this works.

Speaker 12

Alright. Great. Thank you.

Operator

As a reminder, if you would like to ask a question, please use the raise hand button, which can be found on the black bar at the bottom of the Zoom interface. This may also be found under more or reactions. And if you've joined by phone, star nine will allow you to raise your hand. There are no further questions at this time. With that, I'd like to turn it over to doctor Raj Talluri for closing remarks.

Speaker 2

Yeah. Thank you very much for your interest and following us. We'll get back to you next quarter. Thank you.

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Earnings Conference Call
Enovix Q4 2024
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