Thank you for standing by, and welcome to Enovix Corporation's fourth quarter and full year 2021 earnings conference call. Currently, all participants are on a listen-only mode. After the speaker's presentation, there'll be a question and answer session. As a reminder, today's program will be recorded. It is now my pleasure to introduce your host for today's program, Charles Anderson, Vice President of Investor Relations. Please go ahead, sir.
Thank you. Hello, everyone, and welcome to Enovix Corporation's fourth quarter and full year 2021 results conference call. With us today are President, Chief Executive Officer, and Co-founder, Harrold Rust , and Chief Financial Officer, Steffen Pietzke. Harrold and Steffen will review the operating and financial highlights, and then we will take questions. After the Q&A session, we'll conclude the call. Before we continue, let me kindly remind you that we released our Q4 and full year 2021 shareholder letter after the market closed today. It's available on our website at ir.enovix.com. A replay of this conference 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.
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 factors that could affect our future financial results and business, please refer to the disclosure in today's shareholder letter and our filings with the Securities and Exchange Commission. All our statements are made as of today, March third, 2022, based on the 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 generally accepted accounting principles.
You can find a reconciliation of these non-GAAP financial measures to the GAAP financial measures in our shareholder letter, which is posted on the investor relations page of our website. I will now turn the call over to Harrold to begin. Harrold?
Thank you, Charlie. Good afternoon, everyone. We're looking forward to updating you on our progress today. We do so with a heavy heart, given the current situation in Ukraine. Our thoughts are with those affected by the ongoing conflict, including our employees from Ukraine and those with friends and family from the area. While Enovix does not currently have direct business ties to the region, today we are thinking of the people at Antonov Airlines, a Ukrainian airline who helped us deliver critical factory equipment from Asia to San Francisco in the spring of 2021 to mitigate supply chain disruptions. Without this hardworking crew from Ukraine, we would not be where we are today. We remain grateful for their assistance, and our thoughts are with them, their families and their loved ones during this difficult time.
2021 was quite the year for Enovix, one that validated the technical and commercialization strategy we have pursued since our founding. We enter 2022 with ever-increasing demand for our batteries, which we believe offers the highest energy density for the mobile computing market. Most importantly, we are on track to begin commercializing in the coming months. Our shareholder letter, posted on our website, details our accomplishments in 2021 and our focus for 2022. Let me call out some of the highlights here, then Steffen will do a review of the financials. After that, we'll take your questions. In January, we began shipping production qualification samples from our automated production line at Fab-1 in Fremont to customers. By doing so, we continue to expect recognizing first product revenue in the second quarter of 2022.
Hitting this significant milestone will distinguish us from competitors who claim technology breakthroughs but are years away from commercialization. I want to thank our entire team and especially our operations group for bringing up our first line at Fab-1. It was by no means an easy task. Indications of demand for our battery remain well above what we can supply for several years. Our revenue funnel increased by roughly $200 million sequentially in Q4 2021 to $1.5 billion. End markets and applications continue to be broad-based, but we would highlight incremental contribution to the revenue funnel from new industrial applications and new engagements in Asia as a result of additional resources we are devoting to the region. The speed by which we can capture this demand comes down to how fast we can qualify customers, improve our manufacturing process and bring on capacity.
We have generated a tremendous amount of learning from bringing up our initial production line and immediately fed this into designs for our next generation equipment. These designs will enable lines that are faster, smaller, more energy efficient and ultimately lower cost. First, in response to increased customer engagement and demand for custom cell designs, we will soon order a next generation pilot line based on these learnings in order to speed customer qualification. Second, we also plan to order in the coming months, the first of our next generation production lines based on these same learnings. This line will allow us to bring additional capacity online for revenue by the middle of 2023. It is long been our view that the proper time to scale up is when we have optimized our manufacturing process and believe our next gen lines give us the best opportunity to do just that.
Our shareholder letter also details important third-party validation. Notably, we were an Innovation Award honoree at the Consumer Electronics Show in January. Quite an achievement, considering the 1,800 products evaluated by an elite panel of judges. We further strengthened our balance sheet with the redemption of our outstanding public warrants, which has added another $130 million. Last, I'm pleased to announce two recent data points that demonstrate our progress in commercializing our battery for the electric vehicle or EV market. Today, we are announcing the addition of Patrick Donnelly as Vice President of Strategic Business Development focused on EVs. Pat joins us from Samsung SDI, where he led a commercial team that secured several multi-billion dollar contracts for lithium-ion batteries with both established auto OEMs and emerging EV OEMs.
Also, today in our shareholder letter, we are showing updated progress on our Department of Energy program to demonstrate our 3D architecture and 100% active silicon anode with an EV class NMC cathode. As many of you know, low cycle life is one of the killer problems that has held back the adoption of 100% active silicon anodes. We believe the Enovix 3D architecture uniquely solve this problem, and we are happy to report that these cells are approaching 800 cycles and only have lost 4% of their capacity. These are very encouraging and exciting results, and we look forward to updating you as they progress. Please be sure to read our shareholder letter for more details on these significant achievements. Now I will turn the call over to our CFO, Steffen, who will discuss our financials. Steffen?
Thank you, Harrold. Our detailed financials can be found in our shareholder letter. I will spend my time covering a few high-level topics. We closed the first quarter of 2021 with net cash of $385.3 million, which does not include the incremental $52.8 million of cash we received in January from the remaining exercise of our public warrants. Turning to the fourth quarter results, we did not recognize product revenue in the quarter, consistent with our expectations. As Harrold mentioned, we continue to expect to begin recognizing product revenue for the sale of our batteries in the second quarter of 2022, consistent with our previously reported goal. Our operating expenses in the first quarter were $24.8 million.
Excluding stock-based comp, our non-GAAP operating expenses in the quarter were $20.8 million, up from non-GAAP operating expenses of $16.2 million in the third quarter of 2021, which also excludes stock-based comp. The sequential increase was the result of our efforts to scale up the business for manufacturing and commercialization to meet demand from our customers. Turning to the full year 2021 results, we used $95.3 million of free cash flow, which included $43.6 million of capital expenditures. Cash use came in below our forecast of $110 million-$120 million due to timing of equipment payments, some of which slipped into early 2022. Now let's discuss our expectations for 2022. As noted earlier, we expect to recognize our first product revenue in Q2 2022.
For full year 2022, we expect to generate revenue between $6 million and $12 million. We expect that our revenue will consist of both product revenue and non-recurring engineering or NRE service revenue. Keep in mind that in addition to producing sales for product revenue, our lines will also be heavily occupied this year, producing qualification samples to support future revenue ramps. For full year 2022, we expect to use between 190 million and $210 million of cash, of which we expect roughly 55% will be CapEx. As Harrold mentioned earlier, we are bringing on a next-gen pilot line in 2022 to respond to the need for increased customer qualifications. We are also continuing to build out Fab- One and will order our next generation production line.
Not surprisingly, like the rest of the industry, we are not immune to the inflationary pressures impacting battery production equipment given the surge in demand for lithium-ion batteries. To summarize, we enter 2022 with a very strong balance sheet and are investing to commercialize our groundbreaking 3D battery architecture, which uses 100% active silicon anode. We are focused on executing our plan, which we believe will drive shareholder value. I will now turn it back to Harrold for closing remarks. Harrold?
Thanks, Steffen. To recap, we made outstanding progress in 2021. We are now building and shipping batteries to tier one customers. In 2022, our priorities will be responding to a growing customer base, driving transformative product enhancements, and improving our manufacturing process based on the learnings from Fab -1. With that, we are ready to take your questions. Operator?
Thank you. As a reminder, to ask a question, you'll need to press star one on your telephone. To withdraw your question, please stand by while we compile the Q&A roster. Our first question comes from Colin Rusch with Oppenheimer. Your line is open.
Thanks so much, guys. You know, can you talk a little bit about the number of customers you've gone through the full qualification on for, you know, moving into the designing phase? Then I have a follow-up question around capacity expansion.
Yeah. Colin, thanks for that question. This is Harrold. You know, we ship our qualification samples for our first customer, and we're working on qualification samples for others right now. You know, as we've mentioned in the comments earlier, we expect to start recognizing revenue from one of those customers in the second quarter 2022.
Okay. You know, you've talked about the capacity expansion, but clearly demand is running pretty at a pretty healthy clip. I'm curious about your thoughts on potentially doing a, you know, slightly larger facility as you decide on this next phase and, you know, how far along you are in terms of identifying that location and potentially entering into it, and everything you can talk about.
Yeah. Yeah, thanks for that comment. You know, as you mentioned, we're seeing an increasing and growing demand for our product, both across products and customers, and obviously we wanna translate that into revenues as fast as possible. You know, as you actually think of this, one of the things we're actually starting to think about is whether we need to establish an earlier global footprint for how we manufacture. We're basically, you know, right now we're evaluating both domestic and overseas locations to do that.
You know, the other thing I would say is in addition, you know, we've had such valuable learning off our first production line, and that's really given us the opportunity to design a next generation line that is more efficient in terms of throughput and capital and floor space. You know, we're really looking at what's the best way to move the company forward and how do we expand. Both of those, you know, have a factor on kind of what type of facility and where we wanna locate it. We remain, you know, actively engaged with one of the largest real estate firms that's out there.
They specialize in manufacturing sites and, you know, we've been working with them for quite a while, and we actually have submitted a couple of LOIs on several candidate properties already. I think stay tuned for that. You know, we expect to, you know, move forward soon with this first next gen line and then, after that, you know, announce a location for it.
That's super helpful. Thanks so much, guys.
Thank you. Our next question comes from Anthony Stoss with Craig-Hallum. Your line is open.
Hey, guys. Harrold, I'm curious, with the new process that you identified, you've talked about it being more efficient and faster, et cetera, will that raise the potential revenue in plant one when it's up and operational and cranking? And then follow-up question, you know, the 35 customers that you highlighted you sampled to, how much is that up from the last quarter? And can you give us a sense of kind of what markets? Is there any new markets that you're sampling into?
Thanks for the question. Sorry, repeat.
That one capacity.
Line one capacity. Yeah. I think certainly to the extent these new lines are more efficient from, you know, from a footprint, you know, utilization space, that gives an opportunity to increase the capacity here should we choose to. I think we're looking at, you know, where we put capacity a bit more broadly, you know, thinking about where our customers are. We may decide to add more capacity here. We might decide to add more capacity somewhere else. I think that's an active discussion we'll go through. Ultimately, I would just think about how do we install enough aggregate capacity, you know, in our locations to satisfy the customer demand, and I think we're going to be flexible about that, and really look at what makes the most sense for the business and our customers.
Your second question, sorry, if you could repeat that, I'd appreciate it.
Yeah, the 35 customers that you sampled to
Yeah.
I don't know if you guys have how many you had last quarter and if there's any new markets.
Yeah. I would say the, you know, the funnel continues to grow impressively. It grew roughly $200 million during the quarter. I think growth is both broad across all the markets we've been targeting already. But I think we've also seen some new interest in a couple segments. One is the industrial market, where, you know, energy density has a pretty high value prop as well. That's one area which I think is new relative to what we've been seeing in prior quarters.
If I could just sneak in one other quick one just, again, on the new process. Is there brand new equipment that you haven't dealt with in the past, and is there any kind of material additional lead times? I'm curious when you think you can have everything in and qualified for the new process.
Yeah. I think it's a combination. I think in some cases, these are improvements on equipment with existing vendors, right? Where we've learned enough, we know we can make a much better piece of equipment. In some cases, we're looking at some new vendors as well. We're pretty far along on those discussions, so from a lead time standpoint, we have a good sense of what those are. We believe that we'll have that first next generation line on the ground at a facility sometime in the first quarter next year, and have it producing revenue the second quarter, which is consistent with what we've been saying for the last several quarters.
Very good. Thanks, Harrold.
Thank you.
Thank you. Our next question comes from Derek Soderberg with Colliers Securities. Your line is open.
Hey guys, thanks for taking my questions. Just on the second production line at Fab- 1, you know, you guys started putting that in, I think, late in last quarter you were talking about it, so late in the year. I guess what inning are we sort of at with that line? And do you expect that second line to be fully up and running and ready to ship battery cells by the end of the year? Or what's sort of the timeline for that one? And will that second line be using the new manufacturing equipment, or not? And, you know, should that second line at Fab-1 be sort of the last line using the prior generation equipment?
Sorry, that was kind of a lot there.
That's okay. So you're right. We have two essential production lines here in the Fremont facility. One has been here longer. It's the one that has produced the qualification cells that we shipped in January, which will be in production in the second quarter. The second one is a bit behind time-wise. It landed later. Its big role this year, you know, if you think about kind of through the summer, is doing qualification work for some of the larger cell products. We do expect that towards the end of the year when that qualification work is done, you know, that line will be available for doing production deliveries.
I would say that from a true revenue standpoint, most of the revenue work will be done on the first line 'cause it's the one that's actually producing the product we're qualifying right now with our customers. Your second question is line two kind of the last of the current generation? I would say the answer to that is yes. There is some additional equipment coming in to support that, but overall, I would say gen one is kind of what we have where there are a few more pieces showing up. You know, what we've done is use all the learning on that, which has been super valuable.
In fact, I would say, we're more than pleased in all we've learned 'cause it really helps us to design a next generation line that is quite a bit better, and we're excited to turn that into these next lines that we can really grow the company with.
Got it. Then as my follow-up, you guys spoke to sort of prioritizing customer qualifications and improving your manufacturing equipment ahead of scaling capacity. You know, it doesn't sound like that priority is changing the timeline to Fab-2, timeline to revenue there. Just curious if that relates to, you know, that commentary is related to your JV licensing strategy and just trying to sort of bulk up the, you know, the throughput of the equipment. Is that a good way to think about some of that commentary?
Yeah. I would think a little bit about the partnership stuff as being on parallel tracks, right? I mean, we're squarely focused on getting the production lines that we've built ourselves on our own to, you know, hit their goals and then, you know, working on a second generation line. At the same time, obviously, we do talk on, you know, a somewhat regular basis with customers and potential partners for how we could grow faster. A key piece of that is our Fab three strategy, which is what we talked about, you know, which is further out in time and geared maybe more towards the EV space, 'cause we feel that approach to JV or license is the right way to enter that market.
you know, with the addition of Patrick Donnelly we talked about, he'll be someone who's actually going to be helping have some of those conversations with the players in that space to try to push those discussions forward.
Perfect. Thanks, guys.
Thank you. Our next question comes from Gabe Daoud with Cowen. Your line is open.
Hey, guys. Thanks for taking the questions. Maybe just back to the manufacturing capacity and capabilities. I think, Harrold, initially, Fab-1 was expected at scale to deliver 45 million cells a year. Just curious, how many lines did that assume? And then, you know, just 'cause I'm just trying to get a sense of, like, how much product you could actually deliver today from the lines that you have today.
Thanks for the question, Gabe. You know, certainly we've talked about our ability to significantly ramp the capacity here. That's beyond the two lines that are in place, and that would be something we would do in the future. You know, certainly consistent with our strategy for these next generation lines, maybe the generation beyond the ones we have right now. I would say that, you know, our decision to increase the capacity here, we'll judge over time as we look at how our Fab-2 strategy rolls out, right? Whether it makes sense to do, you know, more here, less here, and more at some of these other locations.
I think we want to be flexible on that with respect to where our customers are and what the opportunities are for these other locations. I think we'll adapt dynamically. I'm sure whatever we would say today is probably slightly different than we'll end up executing on. Ultimately, we just wanna make sure we can deliver the overall capacity to meet our customers' needs.
Understood. Thanks, Harrold. Maybe shifting gears a bit and just looking at some of the, you know, cycle life data you showed on the EV battery. Could you just talk about, you know, I know there's a target as part of the DOE program to get to, you know, watt-hours per liter of figure 700. Could you just talk about what the energy density is on those cells on a watt-hour per kilogram, and if EV partners are more interested in the gravimetric or the volumetric energy density?
Yeah. I would say there's interest in both. You know, from a customer standpoint, you know, it turns out that in cars today, in some ways, the space is as valuable as the weight. You know, the specific cells that we've built now are not super aggressive from an energy density standpoint. That's somewhat on purpose, because the objective was to establish the long-term cycling capability of our unique 100% active silicon anode and architecture. And I think thus far, the data on that is pretty exciting. And I would say that, you know, people would struggle to show active silicon stuff in the past that looks as good. So we're excited about that.
You know, we do believe that if we were designing true high energy cells, you know, for that market, we could have a compelling product, either from a volumetric or gravimetric standpoint. You know, we have some data out on our website that talks about what that might look like.
Thanks, Harrold. Just curious, as those cells have cycled now and hit close to 800 cycles, how much did they swell? Was it still like less than 5%? Thanks.
Yeah. I would say in general, with the architecture and our unique and constraint system, you know, we see very little actual swelling of the batteries.
Got it. Thanks, Harrold.
Thank you. As a reminder, to ask a question, that's star one. Our next question comes from Sean Milligan with Williams Trading. Your line is open.
Hey, guys. Thanks for taking my question. You know, as you look to build out the EV sales process, I know you're bringing on Patrick. Just curious if, you know, he's brought any in with him, how that team is gonna build out over the next year or two.
I would say I don't know the answer to those questions yet. Patrick is just coming on board, and I'm sure he has some thoughts on how to build that stuff out. I would look for us to make some comments on kind of how that organization is shaped up, you know, over the next several quarters. To be honest, I don't have the actual answers to all those in front of me right now.
Okay. On the EV side, with the DOE program, I think you're, you know, you're testing NMC technology, if I'm correct. Have you know, sampled any cells with EV players with other technologies to this point
Yeah. What we've done in the past is we have four kind of standard sizes of batteries today, which are kind of targeted more for the consumer electronics space. We've sampled cells from those suite of batteries into the EV space already. Those tend to have a lithium cobalt oxide cathode as opposed to NMC. It gives the customers in that space a good sense for what our technology is capable of and how it performs. That's something we've been doing over the last half year, if not longer.
Okay. You know, one last question, I guess around the. You mentioned 35 customers that you've sampled cells to. Just kind of curious if you're able to talk to a win rate that's in that product pipeline. And then maybe, you know, how long you're seeing it take from sampling to first revenue.
I don't have the figures off the top of my head, and I don't think we've commented specifically on how many is in each part of the funnel. I would say that our ability to move people into the bottom of the funnel is really more driven by our ability to engage with the kind of demand we're seeing. You know, one of the things that we're actually doing this year, which I think is a pretty big initiative, is we're spending some capital to put in place a whole next generation pilot line, which is roughly 10 times the throughput of the line we have right now. Obviously the raw horsepower to deliver samples to customers is much better.
It's also going to be highly flexible, so our ability to deal with lots of custom designs is significantly better. Then one thing that's also super exciting about that is that it's really designed around kind of the same production kernels as the next gen manufacturing line. And the hope there is that we can cut some of the qualification time out with our customers by having something that really, you know, reflects what manufacturing looks like and not have to go through multi-step qualifications for products. We think all of those things will increase our ability to drive stuff to the bottom part of the funnel and also, you know, or reduce our time to market with some of th.ese customers
That's a pretty big initiative, and we think it's a real critical thing the company is doing, which will give us an advantage going forward.
The pilot line is midyear or-
It's going to-
Any percent or-
It'll be coming in the end of this year, right. I would look towards the end of this year, that's starting to have a significant effect on how fast we can engage with customers and move people down and also give us a promise to be quicker in terms of you know, converting opportunities into actual revenue.
Okay, great. Then just one more, Harrold. In terms of the early customers that you've had, and sort of the land and expand strategy, are you starting to see customers, sample sales across different product lines? Or, you know, I know like maybe-
Yeah.
you would have sampled with one product initially, and now they're starting to bring you into other products.
Yeah. I would say in general, you know, we've had increase in terms of customer traction across multiple customers. Even within a specific customers, we're starting to talk with customers about follow on products to the initial products already. Those discussions are happening, which is, I think, a very encouraging sign for kind of their view of our relationship. You know, obviously one of our decision factors around customers, since we can't necessarily service everyone, is to pick customers where there is kind of that extending life and we can, you know, ride with these customers through multiple evolutions of products. We're starting to see that stuff materializing.
Okay, great. The cycle life on the EV, what's the target that we should look for? If you're approaching 800 now, what's the number of cycle lives that you need to get to?
Yeah. The stated goal that the DOE's set out in this program was 1,000 cycles. You know, right now we're just short of 1,000 cycles to 20% fade or 80% initial capacity. Right now, we're sitting just short of 800, and we've got only about 4% capacity fade. We're pretty encouraged with those results, and you know, we think we'll have you know, additional good news to report on that later.
Great. Thank you for your time.
Thank you.
Thank you. I'm currently showing no further questions at this time. I'd like to hand the conference back over to Mr. Rust for closing comments.
Thank you, everybody, for your time today and listening to our earnings call. We're super excited of where we're going and the progress we made this past year. You know, this has been a long journey for this company to really fundamentally change how batteries are made, and we think we've proven a lot of that. Shipping qualification samples out of our first production line is a huge milestone for us that we think differentiates us from many others in the battery space that talk about technologies but have yet to commercialize. We realize that reducing things to practice and making a product is ultimately what it's all about. You know, we've got a product that works. We've proven we can make it. We've had customers that are lined up to take it.
We think that's a great position to be in. We're very excited. We look forward to informing you about our progress going forward. We have every employee in the company runs around with their badge with a list of our core values, but also the vision for this company. That vision is that every person is positively impacted by Enovix innovation every day, and we're dead set to make that happen. We're excited about the journey we're on and the progress we're making, and we look forward to having you along for the ride.
Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone, have a wonderful day.