Yahoo Finance Enovix Corporation (NASDAQ:ENVX) Q4 2023 Earnings Call Transcript
Enovix Corporation (NASDAQ:ENVX) Q4 2023 Earnings Call Transcript February 20, 2024
Enovix Corporation misses on earnings expectations. Reported EPS is $-0.28 EPS, expectations were $-0.26. Enovix Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by, and welcome to the Enovix Corporation Fourth Quarter and Full Year 2023 Earnings Conference Call. [Operator Instructions] As a reminder, today's program will be recorded. And now, I'd like to introduce your host for today's program, Charlie Anderson, Senior Vice President of Investor Relations and Corporate Strategy. Please go ahead, sir.
Charles Anderson: Thank you. Hello, everyone, and welcome to Enovix Corporation's fourth quarter and full year 2023 financial results conference call. With us today are President and Chief Executive Officer, Dr. Raj Talluri; Chief Financial Officer, Farhan Ahmad; and Chief Operating Officer, Ajay Marathe. Raj and Farhan will provide an overview, and then we'll take your questions. After the Q&A session, we'll conclude our call. Before we continue, let me kindly remind you that we released our fourth quarter 2023 shareholder letter after the market closed today. It's available on our website at ir.enovix.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.
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, February 20, 2024, 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 generally accepted accounting principles.
You can find a reconciliation of the GAAP financial measures to the non-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 Raj to begin. Raj?
Raj Talluri: Thank you, Charlie, and thanks to everyone for joining us today. I'm going to kick off with a few high-level remarks, and then we're actually going to show you some new video of our Fab-2, featuring Ajay. Ajay is actually now in Malaysia, and he is going to show you some update on manufacturing there. After that, Farhan will cover some financials and the outlook before closing, and then look forward to your questions. Okay. We had a strong finish to 2023. And now, we have laid the groundwork on how to scale up in 2024. First, we reported record revenue of $7.4 million in Q4, well above our expectations. Secondly, we are in the process of completing our factory acceptance testing, and a good amount of our Gen2 equipment is now in Fab-2 in Malaysia, ready to produce the first batteries in April.
It's very exciting to see that progress. Third, we made significant progress with our customers, both in smartphones and in EVs. Last quarter, we hosted the executive management teams from two of the top smartphone OEMs from China at our Fremont headquarters and very good discussions on how to collaborate on making batteries for their phones. Additionally, we entered into a development agreement with a leading automaker to validate the advantages of the Enovix cell architecture for an EV battery. Now, this significantly increases the addressable market for Enovix technology, and we have a strong pipeline of additional opportunities in this space. And last, we have gained significant confidence in reaching the 1,000 cycles on a smartphone-class battery, and we look forward to sampling it next quarter.
As I look back at our accomplishments last year, which were substantial, we began the year as a new management team operating at an expensive, low-yielding California factory with a product portfolio that, frankly, was not very well aligned to the key large customers and the end markets that we wanted to go after. Now, in contrast to that, we exited this year with a manufacturing base in Malaysia, ready to produce industry-leading batteries, a seasoned team in Korea that has shipped batteries over 20 years that we acquired, and close alignment with our customers that led us to gain a really in-depth knowledge and detailed product specifications that is helping us build category-leading products targeted at the largest portion of the market, which is the smartphones.
Now, we are engaged effectively with the world's largest smartphone OEMs at various levels. These companies are eager to harness our architecture to keep up with the demand for more and more power hungry applications by this AI megatrend. I'll show some data and touch upon this in a minute. But first, let's take a look at our goals. What we need to do this year is to position ourselves for the large inflection in revenue with smartphone launches is very simple. First, we need to demonstrate high- volume manufacturing on our Gen2 equipment in our Fab-2 in Malaysia. Now, I know seeing is believing. So we're going to show you a video of the Fab-2, featuring Ajay, and that we just made in the last couple of days that speaks to our progress. And of course, Ajay will join us for Q&A from Malaysia.
I think it's pretty early for him there, but he's online there standing by. So, operator, go ahead and let's roll the video. [Video Presentation] That was awesome. As you can see, our confidence is very high around Fab-2. And we accomplished a great deal in a very short amount of time, and I'm really proud of everything the team has done. In addition to proving out manufacturing, this year, we will need to deliver samples of batteries around -- tailored to the smartphone specification for fast charge and very high cycle life. I'm happy to report that our global R&D teams have made significant progress in the recent months, and we're looking forward to sending our first samples of what we call EX-1M for mobile next quarter. By the end of the year, we'll have an enhanced version of this technology called EX-2M, which will also be ready to sample.
Now, these two will be truly revolutionary products, and they will be the first smartphone batteries in the world that we are aware of that will have 100% active silicon anode, while also delivering 1,000 full charge and discharge cycles, along with the ability to really fast charge and increased energy density over the batteries that are shipping in the market today. The need for high energy density is critically important to smartphone industry. It's a huge $10 billion-plus addressable market. Now, to give you a greater appreciation for why these smartphones need a higher energy density battery, last quarter, we asked Tirias Research -- it's a team I'm familiar with from my days at Qualcomm -- to analyze the impact of the looming AI applications on smartphones.
Now, the results of the study are actually staggering. I want to show this to you in a slide here. What you see here is on the left side, the global GenAI output forecast of the amount of video and image frames in billions. You can see in '23, 15 billion; 24, 59 billion; to 28, we expect it to be a staggering 2,500 billion of frames generated. And these are going to be on mostly battery-operated devices, on phones, PCs, laptops and so on. And what you see in the middle is actually very interesting data. What we did here is actually profile how much battery consumption in terms of how much capacity is used per hour in milliamp hours for different applications. On the left side, you see non-AI-based conventional applications. On the right side, you see the AI-based applications, so things like 4K video.
When you go to 8K video, a lot of upsampling is done using AI applications. Things like YouTube that you're all familiar with on the left side, but on the right side, things like ChatGPT or Llama 2 chatbots. It's staggering that ChatGPT actually consumes more battery than running YouTube on your phone. It's pretty amazing. And this is just the beginning. And this is very important because this is what we are hearing from all our customers that they just need a much higher energy density battery. In fact, I just saw a couple of new phones launched by some of our -- the Chinese OEMs. And actually, the flyers for the phone is actually all about the AI applications that run. You can also see something similar for Samsung Galaxy advertisements. So the trends are clear.
With our product roadmap and our customer relations, we are well positioned to enable the smartphone industry to really usher a new era of mobile computing. In addition to that, we are now thrilled to have our first deal done in EVs. And with that, I'm going to turn over to Farhan, who will provide a recap of our financials and then the outlook. Farhan?
Farhan Ahmad: Thanks, Raj. So all the relevant financials are in our quarterly reports, I won't go into the details, but I'll just do a quick recap of the results and the outlook. For Q4, we delivered revenue of $7.4 million, well ahead of our expectation. We ended the quarter with about $307 million of cash and equivalents. Q4 CapEx was about $29 million. About $27 million was used in operation, and about $10 million of cash was used in acquisition of Routejade, net of the cash that we acquired as part of Routejade. As a reminder, we are accelerating the depreciation of Fab-1 equipment post our decision to stop manufacturing in Fab-1, as we decided to convert it for product development purposes. Our Q4 results included $18.5 million of accelerated depreciation.
$6.2 million of this was in COGS. $12.2 million of this was in R&D. And $0.1 million was in SG&A. In Q1, we expect a similar amount of accelerated depreciation, but most of it will be in R&D expenses. Now, turning to our guidance, for the first quarter of '24, we are expecting revenue in the range of $3.5 million to $4.5 million. Now, there is some impact, a meaningful impact to our Q1 guidance because of the war in Middle East, which is causing a longer time for the ships to go from Korea to Europe. We expect for Q1 an adjusted EBITDA loss of $24 million to $31 million and expect non-GAAP EPS between $0.29 loss and $0.35 loss. I would like to note that our non-GAAP EPS loss does include the impact of the accelerated depreciation that I talked, which is about $0.10.
And with that, I'll now turn to Raj.
Raj Talluri: Okay. Thank you, Farhan. In closing, I'm super excited by all the work we've done in '23, and we set the framework for our business to scale in the years forward. And we have significant proof points to deliver in '24. And I'm super excited by -- as you can tell, by all the stuff we have going on in our manufacturing fabs and executing to these key milestones. So with that, I'll open up for questions.
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