Welcome again to the 25th Annual Needham Growth Conference. Pleasure to have Steffen Pietzke. Yes. CFO of Enovix. Welcome. Why don't you give us five to 10 minutes about the company, and then we'll move into the fireside Q&A with myself and with members of the audience. Yes, will do. Thank you very much for having us. My name is Steffen Pietzke. I'm the CFO for Enovix Corporation. We are an advanced lithium-ion battery company. We have a 3D cell architecture, 3D architecture. We make silicon anode batteries work. Our manufacturing process involves some proprietary technology that's based on a roll-to-stack production, where we laser pattern and stacking electrodes and provide to our customers a product with higher energy density. That's the name of the game, having high-energy density batteries. When you think about your day-to-day use of devices, electric devices, those sometimes have higher energy density requirements. For an outdoor watch, as an example, you want more runtime. For a cell phone, you want more functionality. Where I live, my 5G never works, so that is a technology that we can enable with higher energy density. The manufacturing process focuses on the silicon anode production that enables the energy density. The problems with that is that silicon starts to swell. It has first charge efficiency challenges. Our technology enables silicon incumbents based on graphite. That energy density enhancement year- over- year over the last 30 years is very anemic with a little bit over 4%. Our first technology node will bring us ahead of the trajectory. Future technology nodes, they are aiming for over 1,200 watt-hours per liter energy density, which will bring us further ahead of the industry. When you look into our commercialization, we are focusing on the consumer electronics first. As I mentioned, that is a industry that values energy density. Second, we want to be a player in the EV market. That EV market today probably is not focused on range and mileage, meaning energy density is not their primary focus. They have so much demand. They're probably focusing more on fast charge. Our thermal properties of the product will enable that fast charging and safety. Our breakthrough technology is helping with incremental safety features. From a customer perspective, we have a revenue funnel of $1.4 billion annualized revenue. That funnel breaks out in engaged opportunity and design and active designs. In the current quarter, we had a big push from around $400 million to more than $600 million of design wins and active designs. Qualifying customers, that's what we are focusing on. In terms of our customer engagement, we qualify customers through technology qualifications, then move into custom cells and pre-production production. Recently, we announced the completion of the U.S. Army contract. We delivered them a custom cell. That's a testimony of our R&D team to make a cell based on specific form-fit function. From the manufacturing process, we are scaling up in Fremont, our first generation tool set, and are in process of designing our Gen2. That's a second generation tool, much faster. That tool set is estimated to go through Factory Acceptance in the second half of 2023 and yielding revenue in Q3 of 2024. From our value proposition, we want to deploy enough second generation tools to get to $1 billion of revenue with exceptional gross margin and operating profits. Most recently, we have disclosed a couple changes to the executive team. We have an incoming new CEO, Raj. His expertise on scaling large corporations in significant changes in the mobile sector is really relevant for us. Our COO, RJ, he has a lot of overseas international manufacturing expertise that will help us to bring that second generation tool set to full scale. Okay. Can you talk about, you know, a little over a week ago, T.J. Rodgers gave a business presentation. I think it was over an hour. What would be the main takeaway for investors? What message was he trying to communicate, you know, just briefly? Got it. Yes. There's probably three takeaways from T.J.'s presentation. Number one is, he really gave a lot of like KPIs to the investor community to watch and measure us in Fremont on our Gen1 tool set, doubling output quarter-over-quarter. Producing 180,000 cells in 2023 and getting into a customer arrangement that is willing to disclose our name. The second takeaway is there's a lot of similarities between the manufacturing process on Gen1 and Gen2. He outlined the timeline, how we are planning to deploy that timeline and scale Gen2 up. The third one is focusing on our customer, the qualification and bringing the customer to market. That's the third takeaway. Okay. He talked about bringing a silicon mindset to Enovix and how he had done that at Enphase. Mm-hmm. Is that like, I guess how similar? Like, is it the same playbook? How similar are the playbooks? Like, I'm just kinda curious how what corollaries are there? Yes. The people that don't know T.J., was 34 years the CEO from Cypress, and the silicon mindset, what he was referring to is exceptional manufacturing expertise, scale-up, and zero defects. Those are the key characteristics that a good manufacturing operations needs to bring to the customer to provide every day a high quality product. That work that Enphase and with his support and the change in the management team, we think we are well equipped to introduce those changes on the people process system level. Is that something where is Raj, the new CEO coming in, that's part of that, or that kind of leads into that? I'm just, like, what's the path from here to get to, you know, that sort of mindset? Right. Thanks, yeah. I think Raj is part of the changes, as I indicated earlier. Having Raj's expertise on handling the customer at the mobile sector level, scaling up large operations, they're profitable. That is what his expertise is, and he will support to introduce that mindset change on the manufacturing side. Okay. If that's priority one, is there a priority two or priority three? Like kinda what's the? As he kinda comes in, I think he starts in a couple weeks or next week, like what does it look like, the ramp for him to the extent that you know? Good question. I don't really want to speak for Raj, but when you look from a company perspective, what's clear is three focus areas: focusing on Gen1, the execution there; focusing on the Gen2 tool set to be deployed on time with the performance as indicated; and moving customers through the customer funnel. Those are the three big-ticket items that the company is focusing on for in the near-term future. From a communication aspect, has it been... I remember him quoting a serial number in the presentation. Is it something where he felt like production was happening, but Enovix wasn't getting credit for it, or production needs to move at a higher, quicker pace? Like just kinda-- Can you go a little deeper on that? Sure. T.J. is all about speed. His message is you need to be fast, doubling, making a commitment to investors and doubling production. That is a real commitment, and he felt that needs to be clearly communicated. While that's a small initial volume production, but doubling that quarter- over- quarter will become very meaningful and measuring us on that progression trajectory is important for investor to understand and to follow us. Okay. What are like the consumer electronics end markets where, you know, your customers are waiting for these chips, or you wanna show that you can produce these chips for them? What type of products are we speaking about? Now, then we can talk about EVs after. When you consider, there are some details that we presented in T.J.'s presentation around the applications. It's wearable, it's mobile, it's laptop, and it's others medical device. Those four applications we are certainly active in all four. You can see the final projection is across all four applications. In those markets, as I mentioned earlier, the energy density is important to all of them. What the customer ultimately is gonna do with that is different. In a outdoor watch where runtime or safety lent mobile radio where runtime is important, they will use that higher energy density to either design a smaller form factor, smaller watch or runs longer. In other areas, cell phone where features that today not enabled because of the power budget, that is where the focus of the consumer side is and where ultimately our customer will monetize that additional feature with a subscription on functionality that you likely want but don't know today. Just like what kind of battery length? I know the graph of battery advancement time has gone like this, and we're talking about a step change function. However, like in our cell phones, in our laptops, in our medical devices and the government contract this plays into that, like what type of battery enhancement are we talking about with this your cells? When you consider the changes of energy density over time, the trajectory over the last 30 years is probably a little bit over 4%. Our first technology node will deliver a step function that is ahead of that 4% curve, significantly ahead. With the technology roadmap that we have, we call it like an EX-1, first technology node, EX-2, the second, EX-3, you get into multiple years ahead of that trajectory. Okay. You touched on a little bit the EV market, electronic vehicles or electric vehicles. We've got, you know, I think you talked about OEMs rushing to get product out there, and battery life or miles driven is a differentiator. Are we talking about a step function there as well? What we have seen, we have formed like a mobility division. It has a very small group but very dedicated and very capable individuals. They have worked with the car OEMs to actually figuring out is that a energy density focus that a car OEM has today, or is that something else? What came back is the energy density is not as much of a focus in the EV market because of the high demand. Selling a car with a 200 mi range or 400 mi range is not much of a differentiator because of the high demand. What we believe is a bigger pain point is the fast charge to charge your car faster. Because of our 3D cell architecture, it looks like a heat fin. We are working with constraints to constrain that cell that allows us to dissipate the heat very fast. We believe that fast charging is actually a differentiator compared to what the incumbents today uses. There's obviously like the cell architecture and the package. There's a pack design that we believe is can be reduced in terms of what goes in the pack with our architecture. It's not energy density, it's more like the fast charging, it's the safety what is more on their mind. What does that mean for AC chargers right now, DC chargers in the future? Like, does that infrastructure need to change for the type of battery you'd be putting in a car, or does that infrastructure speed up on its own because of the cells that are in the car? I mean, certainly like we are a battery manufacturing company, right? We want the people using batteries, and the more charging stations at the end of the day, the better, the more demand is there. We are certainly supportive of having more charging stations, because that widely spreads the use of batteries. Like if I have my home charger in my garage, does my car charge faster? Does my car charge faster when I'm around town? Does my car charge faster? Like, I'm just... Are we talking about longer battery life and quicker to charge as well? Yeah. From a fast charging capability, it's the fastest charger. It's not like it lasts longer, right? As I mentioned, energy density is not as much of a concern. It's fastest charger, charging faster at your house, at a charging station, right? Like when I drive my Tesla, I'm always like getting, you know, you check up on emails, you have make phone calls, but you're sitting there for like considerable amount of time for charging, right? If you can reduce that charge time to, let's say, five minutes, that is certainly what people will be very interested in. Does there need to be a new charging infrastructure for that to happen or the batteries in the car alone can drive that? Yeah. Yeah, the battery can drive that. There doesn't need to be any change to infrastructure. Okay. How would you compare your approach to solid-state batteries? When you maybe backtrack a little bit. Incumbents uses like a graphite anode. We are using a silicon anode, right? The next step would be like a solid state. The solid state is more in R&D state today. They're not doing manufacturing at scale, nor do they any manufacturing. Right. That, that to me is out in the future, what we are supporting is 100% active silicon. That's where the industry is focused on putting into graphite anodes, sprinkle dust of silicon. Is it about replacing that graphite with silicon? Like moving it towards 100% silicon? Do I have that right? Yes, that's correct. Okay. Just kinda where are we on that curve right now? When you look at the incumbents, the use of silicon is probably in the graphite anode is probably less than 10%. We are using 100% active silicon. We can replace that, or we have replaced the graphite anode with our, silicon anode. That's what drives the high level of storage. That drives the highest level of storage because when you look comparing silicon versus graphite, silicon can store twice as much lithium, right? That's the cycling in a battery, the lithium. Because it can store twice as much lithium, that brings the energy density increase. Can you talk about like the IP you have around this or the patents you might have around the design and the production? Sure. We have around over 100 active patents and probably as many like, pending patents. We really are protected in many ways. When you look at the architecture itself, we do this stacking and patterning that is protected. When you look at, I mentioned there is these four killer problems on the silicon side, one of which is this first charge inefficiencies where you lose 50% of the power of the energy as a first charge. It means that technology will require some level of pre-lithiation. It means you need to replenish the lost lithium. When lithium sees first silicon, you're losing 50% of that. In an incumbent's battery where you have it, rolled up as a jelly roll, it's very difficult to replenish that lost lithium because of the diffusion process that takes time, a lot of time. Our technology that is patented where we have a pretty elegant way to replenish that, we think that's actually like a big advantage, handling that first charge inefficiency. Okay. Then before we move on to Gen1, Gen2, the production lines, if anyone from the audience has any questions? I mean, if you look at the company, your company is essentially run by former semiconductor people, T.J. Rodgers, Dan McCranie, and Anne Anderson, and everyone. It looks like that you are looking at a battery manufacturing as a form of a silicon manufacturing. Am I correct? Sorry, ask the question again, please. When you look at the company, your company is run by former semiconductor executives. Yes. T.J. Rodgers, McCranie, and Manny Hernandez, all those people came out of Cypress. Yes. Is it fair to say that you see the battery manufacturing is an extension of silicon manufacturing? Is there any connection to that? Is it fair to make that connection? Thanks for the question. I wouldn't necessarily say it's an extension. What the silicon production does is, right, they have introduced a lot of, like, phase-gate processes around how you design equipment, how you deploy the equipment, and how do you manufacture at scale with zero defects. That skill set is very relevant in a battery manufacturing because obviously, like, the customer expects that the batteries don't have any defects, right? If I use my cell phone and have to, like, turn that in every other month because there are defects, that is a problem. The skill set required to be successful, that is the silicon mindset that T.J. was talking about to introduce the discipline of having high-volume manufacturing with zero defects, following a very strict phase-gate process. That is, I think, where there are a lot of similarities, and we benefit from having those individuals on the board. With our new CEO and COO, I think that is the skill set that we need to scale to a large manufacturing company. Does that also mean that going forward sometime in the future, you can bring the cost of the battery manufacturing down as we have seen in the semiconductor manufacturing? Is it possible? Yes. That's, that's right. That's, that's our material cost down roadmap that we have. The majority of the cost when you look at the bill of material is the material cost. That's probably on or around 70%, of the overall BOM cost. Getting those costs reduced with economy of scale, access to supply chain is over time, our plan. The other component is with the higher energy density you have, you're paid by watt-hours per liter, right? If the energy density goes up, I mentioned our future technology nodes, EX-3 has a much higher watt-hour per liter. Those costs, those fixed costs distribute over a larger energy density, right? That will bring overall the unit cost down. It's the material cost reduction, and it's the higher energy density which will drive those cost reductions. Can you do it in U.S. or do you have to offshore somewhere else, Asian? Not China, of course, but Asia. Good question. We can do it in both locations. When you look into the difference between Asia and the U.S. manufacturing, right, it's the labor costs are lower offshore than onshore. The material costs are gonna be the same, and the equipment costs are approximately the same. It's the proximity to the customer that will drive our manufacturing locations, right? The speed, how fast we can add the lines and scale the lines up. When you talk about an EV market, would your solution be suitable to a particular type of EV or would that be across? For example, since it's a fast charging, would that go to fleet customers where they might not have a lot of time charging around- Mm-hmm. ...they would have to move the vehicles fast like FedEx or UPS or post office, as opposed to residential customers who might have a lot of time charging the cars at night. Can you explain that, your particular fast charging solution, where would you find the best fit going forward? Thanks for the question. Where would I find the best fit for the fast charging? I mentioned our mobility team is a small team. They have a lot of touch points with car OEMs, and they're working through proof of concept joint developments. That is what the next step is of an engagement with a car OEM to pivot to exactly what that specific car OEM wants. Work through a proof of concept to ultimately validate the design and validate the manufacturability. From a which specific car OEM is more suitable for us, there's not one single question on it. It could be multiple. We are certainly working with multiple, and we want to be engaged with more than one OEM because not everyone is looking at the fast charge, right? That is where we think there's a differentiator. A lot of car OEMs, they're also looking at the cost component to make sure that the costs are as low as possible. Joint development arrangement we can see in improving the fast charging with them, but it can also be developing technology that isn't available today, that can be made available with our architecture, right? When you look from the incumbents, they're very focused on material science, where we are more focused on the architecture itself, right? We are more agnostic from the material side. If a car OEM wishes to develop like a technology that is maybe with incumbents material, but based on the architecture, we can deliver a more cost-efficient solution. That could be one solution in addition to a fast charge. I think... Have you communicated to investors when there might be an announcement with an auto OEM or when EVs like might pivot towards, you know, battery life or battery density kinda becoming more of a deciding factor in how they build cars? When you look at the communication that we have as a street, on the car OEM side, we set up the mobility business, right? The team is working now with multiple OEMs. My expectation is within 2023, we will see some announcement on a joint development that will bring to fruition what I was just talking about around the validation concept, proof of concept, manufacturability and design, what that business partner is gonna look like. Okay. Okay. Just kind of the production issues that line one in Fremont. Yeah. Moving towards line two. Can you go over like the production issues or to the extent there were production issues with line one, what you expect as you move into Fab2, line two? Yes. When you look into our first generation tool set in Fremont, that is a tool set that makes batteries. They are high energy density yielding batteries. The customer sample source, they on qualification, and they like those products a lot. We don't make them in higher volume production. We're committed to double each quarter that output for the foreseeable future. Gen2 is a tool set that is significantly more, is significantly faster. We disclosed it's around 10x of the current tool set. The first line of that second generation can make 9.5 million batteries. That is where we are spending a lot of time to get the design right and making sure the learning that we had on Gen1 is properly reflected through proof of concept. What we expect in middle of March to complete what we call like a DAP, which is a Design Approval Process that we ultimately sign off on those 34 modules for Gen2, and then give the go-ahead to the equipment vendor to construct the asset that will result in a Factory Acceptance on-site at the vendor. Whereas the vendor will have to meet the equipment specification outlined in the Design Approval that we provided, and followed by the equipment then shipped to our site in Asia to be announced and then installed. That installation is a so-called Site Acceptance and, from that onwards, we go through customer qualification and then production revenue. Gen1 will make batteries, doubling that volume each quarter, and, Gen2 will bring us revenue forecasted in Q3 of 2024. Can you talk about how you funded Gen1 and how you're gonna fund Gen2? What the balance sheet looks like. When you look, end of the third quarter, we had around $350 million of cash in the bank. We indicated we will have over $300 million by the end of this year, 2022 ending. We haven't made the quarterly disclosure yet. From a funding perspective, we have sufficient cash to buy and scale a Gen2 line and finishing fitting out and ramping in Fremont. We have certainly like various opportunities and options to bring additional cash in and fund additional lines. We're in discussions with customers. Some of our customers that we named, they have not only the balance sheet, they also have the history to buy capacity or lines. There are certainly like, in some parts in Asia, opportunities where you have government funding. The government would buy actually equipment, and you lease that back. That's an opportunity and certainly like business partner on a JV partnership. opportunity is an opportunity to bring in additional cash and certainly like tapping into the capital markets. Can you talk about, I guess, customer commitments? You know, you're talking about 10x in the production you have now on top of doubling sequentially. Like, is it if you build it, they will come type thing, or you have customer commitments or named customers that you kinda Are in, you know, wanting these batteries or have made commitments to kinda for these batteries? Yeah. When you look at our customers from a I talked about our revenue funnel and the way we move a customer through the funnel, starting with tech qualification and custom cells, and then pre-production, integration, and then production. The customer would typically enter into purchase orders, and those would increase in size. They're typically like not take or pay arrangement. They are like open purchase orders for providing a certain amount of quantity of batteries to that customer. As we move more customers through the production and the production volume increases, my expectation is that we will see more POs and binding commitments. Okay. Okay. Just lastly from me, I guess, to kind of bring it home, I just go back to T.J. Rodgers' presentation from a week ago, he's saying, "I have manufacturing expertise. I've demonstrated that manufacturing expertise at Cypress and at Enphase. At Enovix, for whatever reason, that manufacturing expertise was not being properly... You know, there's room for improvement, let's say. He's saying he's going to kind of focus a little more on it, or he's bringing in people to drive that home, or is that the right way to think about it? Let me take that in each of the components. Yes, that's right. T.J. has been very supportive for the organization to bring in the right talent, the universe that followed him from Cypress. He was very involved in bringing our new CEO on and COO to make sure we have the right skill set on scaling the organization. T.J. has been involved in operational reviews and sharing his expertise, how we should enhance processes to be able to scale at large volume. Having him as an executive chair has helped the organization to obviously push forward and have the right direction now be ready on manufacturing scale-up. Is it right to say his involvement is going to be increasing or same level of involvement? I can't really speak for him, my expectation is that having Raj as a new CEO coming in, that T.J. will probably go more back to his chairman of the board role rather than being daily in day-to-day business operations involved. Yeah. Well, thank you for your time. I appreciate it. Thank you. Can you? Thanks. Oh, we have another question. Now. Yes. Can you discuss when it comes to your architecture, you said that other manufacturers can use different chemistry on the same architecture? Is that correct? The chemistry is we are chemistry agnostic. What's different for us, the anode is using active silicon. The incumbents uses graphite, the material of the anode is different. The architecture allows us to make an active silicon work. The incumbents architecture will result in when you use 100% active silicon in swelling. If you have a cellphone or laptop battery, your battery will swell up and you would have a swollen battery in your device. That is not what you want. The First Charge Efficiency, right, the loss of 50% of your energy, right? That's a problem when I hand you a battery that is only energy density 50%. The architecture allows us to use a material that the incumbents can't use to that extent. They're using silicon, but it's, as I said, less than 10%. It's a graphite anode with less than 10% of silicon. We are using 100% active silicon. That's where we are very different from incumbents. I have an extension of that question. Especially in the automotive market, EV market, right? Which I guess is already free at this point. There's so much innovation happening. Chris has the solid-state batteries. You are innovating the anode, the cathode. I'm just curious, given how big the market is, how do you see this evolving? In terms of where the car has to be, in terms of range, charging. Is this one innovation and that's it? Or do you still have to go through solid-state electrolyte and cathode? I'm just curious to hear perspective on to have that car of the future EV. Is this enough or do you have to do more, or do you have to blend these together? Got it. I personally don't think there's a car of the future in a single car, right? All of the car makers, they're all having slight different approaches and tackling the problems in a different way. When you look, we have a DOE program where we are using our technology with the EV chemistry, and we have demonstrated exceptional cycle life. When you look at the readout data that we have published, they're actually pretty amazing. It's proven on our technology that we can use different materials, right? As obviously like material become a shortage, I think, being material agnostic is an advantage. Having fast charge or heat dissipation advantages, right, and safety advantages, all of them will be viewed different from each car manufacturer. I don't think there's a one fits all approach and it will not gravitate to one solution. It's a differentiator that I think our architecture brings to the table that we can enable fast charge or we can enable a different material, right? That's I think what is the advantage for us to entering the EV market with obviously the right business partner. That's why I mentioned we are more focused. Right. picking a partner, going through like a joint development, a proof of concept that we know that technology, what they ultimately want to commercialize is realistic and obviously yielding return for our shareholders, right? We also don't want to pick a single car OEM that is not in our interest. Could you elaborate a little bit on the Gen2 Fab2 decision process? Is it likely that when you make that announcement you'll have the financing of the second line? Part of that decision that you would potentially disclose at that time. Got it. Let me break that question apart. A, the decision to pick Fab 2 and then the financing around follow-on lines. The decision around the Fab 2 considered multiple components. One is the proximity to our customers. Most of our customers are actually Asia-based. The second component to consider is the equipment and the material vendors. They're primarily Asia-based. Proximity to the equipment vendor is important. The third aspect is obviously like the manufacturing expertise. When you look at our COO, RJ, he has a lot of like manufacturing expertise in Asia. That expertise we are utilizing his expertise of his network of bringing in the right people, and it's the speed to deploy that line. We are not pouring concrete and go greenfield. That's gonna be a brownfield, an industrial building that needs to have enough power and needs to obviously have a roof. The equipment doesn't need a lot of like specific or special equipment preparation, right? As long as that's an industrial building with the right labor force around power and location incentives at that location, that's gonna be more important than other aspects around deployment of the line. The financing on follow-on lines, we have sufficient cash to order a second line. The bring-up timing, do we need the financing or not? That's not necessarily like necessary to have when we are announcing that Fab 2. The Fab2 will be the first line. Gen2 is going to be deployed there. The second line is more a function out of how fast we will be adding new lines and, as I mentioned, there's options to finance. Discussions with customers certainly like ongoing, right. If a customer is willing to pay for a line, that could be an element how you accelerate adding capacity in that location. In the past, I think you talked about, potentially a royalty possibility there where, maybe other scale production operations could license the technology. Mm-hmm. Is that also part of that mix? It's part of a consideration that we have. When you think about it is some of our customers, they are very large customers, if you get designed into some of their flagships, that volume production that you need to bring to the table will likely force us to work with some of the incumbents battery production companies, because most of those large customers, they don't want to have a single source. That is an option that you would work with somebody in tandem to supply that volume. The royalty side, I personally believe is more an option on the car OEM side to develop a technology through like a joint development ultimately if that is not core to us, to bring that to the market will likely happen as a royalty arrangement. Did you say that you can patent or you can license your architecture to others? Yes. Thank you. Okay. Last call. Okay. Thank you, Steffen. Thank you. That's what I said.