Enovix Corp Fireside Chat Hosted by Canaccord Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : So Raj, I have to start with a question that I've been getting a lot. And then frankly, I had 2 when I first saw your press release, why is a company that has great technology but has had questions, especially in the past around manufacturability, talking about lowering its manufacturing targets for the year, as if that's a good thing. Clearly, this headline around the guidance reduction is at first glance a negative. But I think the truth lies in the nuances of what you've announced. So can you please talk about those nuances and explain to us why we should look past the headline and look at this recent announcement as a positive.

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : So you mentioned specifically before, and then you mentioned recently, and this is in January from TJ, you wanted to get to 60% yields at -- in Fremont. And then you mentioned, I think, at a conference that you actually got to the 60% what's special about 60%, why 70%, why not 50%, why not 80%. What is that magic about that number that gives you confidence that you can leverage those learnings into the manufacturing and the late?

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : So just to put words in your mouth, moving from 60% to 95% is basically removing those bottlenecks like the busbar insert that become automated when you move to Gen2. Now how confident are you that you can get to the right units per hour, the UPH by -- in that automation process. Have you tested the equipment enough just that specifically just a focus on this example, that busbar insert and the equipment that you have at the factory acceptance.

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : Maybe I'll switch gears for a second. There seems to be a lot more discussion by you in your press releases about smartphones. And the way I understood the company is that wearables are better, your competitive advantage from an energy density perspective, is better when you make smaller devices. But you switched. It seems at least to us, that's happened. So can you explain -- can you first tell us if that's right and second, why you've been switching more to a smartphone focus?

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : You've also talked about being more vertical as opposed to horizontal, which I think means concentrating on fewer customers. As a matter of fact, I think you at a recent conference at an inferior brokerage firms Q&A. And you mentioned that there would be an 80-20, right? I think in the future Okay. So what does that -- first of all, what does that mean going from horizontal to vertical. And does that mean -- I can at get this afterwards more, but does that mean that the revenue funnel that you've given us in this past is $1.6 billion, that's sort of irrelevant.

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : Would you say that the vertical strategy is maybe a little riskier because you're concentrating for us on just a few or 5, 6, 7, 8 customers as opposed to the hundreds that you had before in the pipeline?

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : Is it fair to say that you've been here for, I think, about 9 months or so plus. Is it fair to say that this shift in strategy is based on a significantly higher degree of conviction that you can actually land some of those very large smartphone-ish customers?

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : One question I get a lot after the announcement is whether or not you can make cells for the Army in Malaysia versus the United States. And so can you?

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : Speaking of technology, I get this question too. Some of the metrics that you share, energy density, cycle time, extend sort of flat for the last couple of years. And so you mentioned changing the materials -- are you standing still? Or has there been any improvement? Have you allowed some of your competitors to kind of catch up? Or do you expect to kind of leapfrog what you've put in place in terms of metrics over the next couple of years based on these changes in materials.

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : In your press release, the recent one, regarding the change in strategy. You also had the small mention about EVs, I'm curious if you could discuss any progress you made there? And also what your cells bring to the table? I don't think you're necessarily talking about radical improvements in energy density, but more fast charge. Is that right?

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : You said you've had a lot of requests for cells from EV companies.

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : Do you still -- I know that this is up to the customer. But do you still expect to see a product with an Enovix battery in the market selling this year?

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : Maybe this is a question for Farhan. We get it quite a bit, your balance sheet, your capital requirements, free cash flow, et cetera. Can you just please discuss with broad strokes how you look at the balance sheet, how you look at potential capital raises, et cetera?

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : Speaking to manufacturing, I get this question a lot, given that there are so many cell battery manufacturing plants being opened in the United States based on the inflation reduction acted by all the EV manufacturers doing things here, you've decided to go the other direction. And so can you explain why that was the case and how much conviction? And why the incentives laid out by the inflation reduction weren't enough to compel you to build your additional lines here in the United States.

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : That sounds good. Maybe switching a little bit here to confidence and scaling. Ajay recently had that podcast where we talked about a few other things. You talked about reaching 60% yields on Gen1. And he also mentioned, I think the initial milestone was getting to 30 to 50 units per hour, and that was in your grasp. Could you just give us your confidence that you can effectively scale your first line in Malaysia?

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : And this question comes up a lot, I want to ask it. You have this big backlog that you've mentioned. There's a lot of interest. But you're kind of slow rolling a little bit of the line ramp. You talked about originally, TJ talked about getting to 4 by the end of '24. And you've kind of said, we're only going to do 1 or whatever the number is that you've talked about, why this kind of [tasm] between -- there's a lot of interest and slow rolling the ramp of all 4 lines.

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : It's a great segue. Speaking of the profits, I get this question probably more than any of the question. Not you, but the previous management team laid out this goal of 50% plus gross margins, I think high 30s EBITDA in low 30s operating profits. And the question I get is, look, if you look at some of the scale companies making cells and batteries, like they're nowhere near that level of profitability. So what gives you the confidence that you can get to those levels of profitability given that you're in the battery business.

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : Speaking of materials, there are lots of companies trying to solve the silicon problem, and you've decided to tackle the manufacturing side of it and become materials agnostic, but currently leveraging silicon. There are other companies, private companies, Group14, Sila, we also visited with a company recently called AspenTech that has something and trying to tackle this issue from material science. Do you view them as competition? Or are they complementary to what you do?

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : So in the future, we could see an Enovix powered battery with Group14 material getting 30% energy increase energy tends to increase 50%, so whatever the number is. And that's part of the route chain logic too, right?

Question: George Gianarikas - Canaccord Genuity Corp., Research Division - Analyst : That is an excellent place to stop. Thank you both for your time. Good luck on your earnings call coming up soon, but we appreciate it. We appreciate the opportunity to help clear the air a little bit here in terms of the press release that came out a couple of weeks ago, and we'll talk to you soon. Thank you.