Enovix Corporation Stock

Thank you for standing by, and welcome to the Enovix Corporate Update Webcast. [Operator Instructions] As a reminder, today's program will be recorded. And now I'd like to introduce your host for today's program, Monica Gould, Investor Relations for Enovix. Please go ahead.

Thank you. Earlier today, Enovix issued a press release announcing the leadership transition. The release, along with an accompanying presentation, can be found on the Investor Relations section of the company's website. Joining us today are T.J. Rodgers, Executive Chairman; Ryan Benton, Interim CEO; Michael Vyvoda, COO; Samira Naraghi, Chief Business Officer; and Jon Doan, SVP of R&D. They will provide prepared remarks, and then we will open the call for questions.

Joining us for the Q&A session will also be Ed Casey, SVP of Operations; and K.H. Park, SVP of Global Manufacturing.

Before we begin, please note that certain statements made today may be forward-looking and are subject to risks and uncertainties described in our SEC filings. For a discussion of these risks, please refer to the disclosures in today's press release in our filings with the Securities and Exchange Commission. All statements made on this call are as of today, August 17, 2026, and we undertake no obligation to update them, except as required by law.

During the call, we may also reference non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in the materials posted on our IR website. And with that, I will turn the call over to T.J.

Hi. I'm T.J. Rodgers, the Executive Chairman of Enovix. I rarely open with an apology, but I'd like to apologize for the British speaking AI voice and the reading of long legal disclaimers. I'll get that fixed in the future. You're going to listen to real people who are in the picture, talking English real time.

I've got staff here. I decided to bring them in because I want them to tell you what they have to do since they are really the people who make this company work. Point one, we have a CEO transition. I won't spend time on it. It's water under the bridge. He-said, she-said stuff is irrelevant, really. The question is, where are we going forward? That's what I'm focusing on here. I've only had since Thursday of last week to work on that. And I was up to speed pretty much already. So there's more here. What has changed? Raj resigned last Thursday. And the statement to me was, it was to pursue a dream job. It's for you to decide about that statement. It could well be. I think he had a dream job here. He disagreed, this is America, he can work anywhere he wants. The next day, we had a Board meeting, and the Board unanimously accepted the resignation.

We appointed Ryan Benton, the interim CEO. We appointed -- I got appointed, raised back up to Executive Chairman, meaning I'm going to be making decisions and weekly appearances at the company working on stuff, and I take it as my #1 job right now. And we launched a parallel CEO search. We're going to look to find the best we can outside. We are using the same firm that found Raj. We were happy with what they brought -- bringing Raj to us. We're also looking inside. Can people -- the people that are here can cut it? The question is can they cut it in the long haul? And can they have the long-term strategic vision? That's what we will wait to see. What is not changing is more important than what is changing. What is changing is a single position, an important one, of course, not minimizing it. What is not changing, strategy and product road map.

We're working on three things: Smartphones, we've been talking about now for years, and getting them qualified is our #1 job. While we've been working on #1, #2 is turned into reality here in Silicon Valley. We're right downtown Silicon Valley in the Enovix cafeteria. That is important companies, household words, are going to bring Eyewear to the market. Obviously, the market is huge, 300 million Americans, and we're in the middle of that. And we've got some early wins. We'll talk about that. And last is Defense. Defense wants batteries that are made in America, or made by American companies with non-FEOC, that is, non-foreign entity threatened offshore sites. We're in the middle of that. Our batteries have also performed very well, state-of-the-art. So that business came to us, and we're working on it. So I've got our mainline and then two things that we will ramp and make money on while we're getting the mainline ramped up.

Another thing that didn't change is our Q3 '26 guidance. I'll show you this for 1 minute or 2, but I'm not here to talk about guidance. Customer programs and qualification schedules haven't changed. We have teams working on our -- working on their customers, they're not changing. Their job is not changing. There's no charter or personnel changes on them. I'm actually going to be reviewing this week customer-by-customer, the strategic plans. Operating leadership, then I've given all the names, including the Malaysia and Korean groups not changing. And the balance sheet is the plum of the company. I work in other companies that would love to have this balance sheet with a decimal move of one place to the left.

Okay. So my point here is I hope the CEO transition does not distract investors from the Enovix Q2 '26 event of the decade. I've worked 14 years to get cycle life on this battery to work. And we finally got it. And that's the headline. That should have been like America wins World War II. And instead, this is a distraction that's way less important than an event that really defines the company. And the event of the decade is successfully demonstrating 1,000 cycle life on our AI-class smartphone batteries. I want to just tell you to geek up for 60 seconds and tell you what this means.

Okay, this is a battery, sliced in half. On this side, you have the silicon -- carbon-silicon atoms encased in a carbon coating. Then you have the separator on this side, you have lithium cobalt oxide. So the lithium comes out of here and the whole battery is when you charge it, the lithium atoms here, turn into ions, move across this barrier and go over here, and when you discharge it, the lithium atoms go back the other way, and the energy level of these two things is the energy level of battery. Think about 3.5 volts, that's it. The problem is the anode. And the problem is, this material we buy with lithium in it.

This material is what we add to the battery, and we're using silicon. Silicon is used because it's more efficient. The section over here is 1/3 as big as it would have been if we use standard, which is graphite. And I'm not going to go into that. I actually downloaded nice little picture of the graphite lattice and I decided it's not the time. This is our -- this is what we've been working on for a decade. And by the way, this is what Sony worked on for more than a decade, when, back in the '90s, they invented the lithium-ion battery. What's the problem?

Silicon is a crystal, literally. And therefore, it is a little bit like china or china as in material. If you break it, it will shatter. Problem here is -- I was going to say to you the problem is obvious. Now you understand what we've been working on and move on to the next slide. We started here, this was our silicon, this is a chunk of a wafer, and the lithium came in from this side and went into the silicon. And as you can see, it cracked up the silicon, caused giant fissures, because of swelling, eventually pried it apart. So this is a picture of one of our earliest batteries falling apart. It says less than 200 cycles. The answer is when I first came in here 10 years -- 14 years ago, the answer was less than 10 cycles. Silicon doesn't like lithium to be inserted into it. And we've changed from crystalline silicon to silicon oxide. It's an engineered material, so here is silicon. So you've got the atoms of silicon in there. The same thing happens. Lithium forms a stable compound with silicon. I'll leave it at that.

And here, you see this layer on the outside, it's called the solid electrolyte barrier and the lithium has to get through this. And here you see it's big. And furthermore, you can see cracks here. So the same thing is happening across an entire battery here. It's happening on these little micro particles. And then here we are now, and this is 1,000 cycles. And you can see the particles of silicon have a thin SEI and they're in good shape. That took 14 years.

And of course, each step, if you want a rough cut, 7 years, 7 more years and now we're there. And that happened in the second quarter. Somebody should have been standing on top of the building, putting up a sign, screaming about this event, and it didn't happen as well as it should have happened. When I came in, I was worried about, "Oh my God, are they going to quit, there is morale in the tank, et cetera?" So I talked to the leaders in the company, these people. These are -- a quickie, I cut down the resumes from pages to paragraphs. So Samira's on the end, so I might show these. Samira is on the end, then Ryan, she is the Chief Business Officer; then Ryan, CFO; and now Interim CEO. I want to go over here Michael Vyvoda is next. And then just showing you that T.J. Rodgers ran out of time, on the end is Jon Doan. Jonathan Doan. Sorry. Jonathan.

Okay. So these -- this is the staff, and I'll just say it's a strong bench. And rather than go through reading you this stuff, I've asked them to introduce themselves, give the resume a short version of it, focusing on the most important things they've done in their career, and they'll tell you what they have to do going forward given where we are. Samira, go ahead and start.

All right. So I've been with Enovix for over 3.5 years. I spent over 20 years in some of the most pioneering semiconductor and technology companies, running product management and business development and business functions. I spent the early part of my career in semiconductor companies, including Qualcomm, Integrated Device Technology as well as Rambus. I then moved to AWS to drive the global go-to-market and business development for some of the fastest-growing compute platforms and led global partnerships for Meta Connectivity at Meta. That brought me to Enovix about 3.5 years ago, and I lead the commercial strategy and the commercial organization, including sales, product and marketing teams.

Look, for me, the highest priority right now is a flawless execution on Honor. We got to get through the qualification. We've got to make sure this transition on CEO goes smoothly. And in fact, Raj and I are getting on a plane the day after tomorrow, and we're going to visit our first customer.

On the smart eyewear, we have made a tremendous amount of progress. We have commitments that we need to deliver on, and we're well underway on that front. And the next step is to expand on our customer base, on the Smart Eyewear side. And finally, on the Drones, we've made a great deal of progress in a relatively short amount of time. We have a really healthy pipeline and my team's focus on priority is to convert that pipeline into dollars for the company as fast as we possibly can.

All right. Ryan Benton, Interim Chief Executive Officer. So I'm a 37-year operating executive, all that has been spent at technology and semiconductor companies. I think the one part of my career, which is listed here on the slide, that's the best analog for the situation, is my time has been at Exar. So I joined a Silicon Valley tech company, spent 5 years as CFO. And then ultimately, in a very similar situation. There was a CEO change, the Board tapped me on the shoulder to become the CEO of that company. I stepped in. And what I think I did well there was to get the team to come together and work as a team and improve execution, not only speed of execution, but the results. We put a lot of points on the Board and ultimately delivered a really nice return for the shareholders.

What I'm focused on is doing the exact same thing. So I really find this situation really similar in the sense of the ingredients are here, the team is here, a really good team that's really focused and we have enormous opportunities in these three markets that we're focused on and make sure that we're doing a disciplined, efficient financially prudent way.

Let me do the last person in this room. Dr. Michael Vyvoda. He's actually Michael Vyvoda, PhD and he's our COO. Michael?

Thanks, T.J. Yes, I have a PhD in Chemical Engineering from UC Berkeley originally in the semiconductor area, but I've had a variety of roles. I think most relevant here is the work I did at Apple. Actually, there are two roles that are very relevant. I started when AirPods was a tiny product line and grew that into a multibillion-dollar annual business, moving supply chains, moving manufacturing sites to more financially viable locations and really increasing the profitability of AirPods and growing that into really a worldwide dominant business.

Secondly, I was recently working on electrolytic magnesium manufacturing, which is very close to battery technology. It's electrolytes and so on. So very relevant there and running operations for the first company that is building a new magnesium smelter in the U.S. in the last 30 years. So a couple of examples of how my experience is very relevant building supply chains, but I'm a technologist at heart. It's why I understand the tech, and I understand the operational aspects as well.

My focus going forward, the team here has built a wonderful foundation, and it is going to build on the opportunities that were discussed earlier. One is really expanding manufacturing at our Korean site. There's an enormous revenue potential there that we're going to expand manufacturing and capture that in the near term. Secondly, there's a strong business as you've heard on improving yield and improving manufacturability of our silicon anode cells. So I'm going to be continuing that and making that a real strong focus, which then leads into the third strategic thrust, which is ramping our Malaysia site based on those improvements. Those three things together are the strategic thrusts that will take us over in the next several years.

We have 5 R&D groups in the company. It's justified. You might ask quite why so many? I'll give you one example. In India, we have an R&D group that works on electrolytes, which are exotic, complicated mixtures of compounds that are the liquid in the battery. You can't use water because lithium reacts with it. And that's the whole R&D site onto itself in India. So -- he has an R&D group that makes equipment. The idea is how do you make new equipment that the world has never seen before and make it function, right? That's Moore's law problem. Every 2.5 years that, that's what the semiconductor guys face. Finally, I'd like to talk about operations. Having a nice early start. K.H. Park and Ed Casey. So I -- give them your resumes and tell them what you got to do.

Yes. Hello. This is Kihong Park. I'd like to briefly introduce myself. My major is the Master of Chemical Engineering. I'm a manufacturing and operation leader with over 30 years of experience in lithium-ion battery manufacturing across Asia, Europe and North America. I joined Enovix in 2023 following the acquisition of Routejade, where I served as CEO. Since then, I have led the integration and manufacturing improvement efforts in Korea.

Today, as a Senior VP and Head of Global Manufacturing, I oversee manufacturing operations in Korea and Malaysia, focusing on production scale up, operational performance and volume execution. Before joining Enovix, I had leadership roles at SolarEdge Technologies Korea and Kokam. I am now focused on applying my high-volume manufacturing experience to support Enovix's next phase of commercial growth. Thank you.

This is Ed Casey. Currently, responsible in Enovix for the development build and ramp into high-volume production. Our fast speed dicing. As you know, we currently use laser. It's quite slow. So in 2027, we'll roll out the mechanical dicing. Experience, my background is high-volume manufacturing, starting in the thousands of units and then eventually ramping into millions in a very short period of time. I've spent over 11 years in country either in Malaysia and Singapore. Most recently, prior to Enovix, I was with the company ams OSRAM. We simply were a single source to Apple for various components. And at the time I joined, we were making a few thousand, yields were low, productivity was low. And over the course of a couple of years, we ramped that into billions in extremely high yields in world-class manufacturing and also implemented automation.

So one comment on KH. We acquired this company and the idea was for them to make the anode and cathode material for us, which is the anode material is copper foil about the thickness of the aluminum foil you have in your house with silicon on it. I showed you a picture of it before. And we found out he had a very competently run factory there. And it was about that time that Western democracies realized they can't buy their stuff, their batteries from China, right? China can shut you down and they may be an adversary someday. So all of a sudden, that manufacturing facility, which is a good one that we bought, it turns out to be a revenue generator for us, that wasn't part of our plan. We always knew it would happen, but not to the level that's happening.

He also has with regard to the people here today done the funniest line of any of our VPs. I was in a meeting with him, and we were talking about his facility in Korea. And he said, "I was very disappointed to find out that our factory is doing so well after I left." Another is a wisecrack about a well-running plant that didn't need the head guy in order to run. So I wanted you guys to understand who's here. And then frankly, I'll give credit to, I've been here during all this. I've been here a decade before this, but the guy that did this was Raj. And he in effect, hired a competent group that can make things happen. And that's -- by the way, tell me, give me one statement each of you guys the #1 thing you have to do.

I'll go. My #1 goal is to take fast speed dicing into manufacturing in 2027.

My mission is first for this mass production for [MAPI]. So Enovix is the first mission in this time.

And mine is simple, mine is to ramp capacity. It's to take the progress we've done in R&D, match it with manufacturability and get those factories ramped.

Given that I had exactly 2 working days from hearing about the resignation to give this presentation. I skipped Jon Doan. But Jon runs our -- Jon tell us of the groups you have and what your top priority is right now, just one and two.

Yes. We have 4 groups in R&D, one in India, one here in Fremont, one in Korea and one in Penang. Our top priority right now is how do we take the great batteries that we're making and transfer them efficiently and quickly into high volume manufacturing. So we are working closely with Michael and getting that done.

Okay. So I'm going to talk about them as the manager of the strong team in the future going forward. And as I answer the question, what are we doing?

And to give credit to Raj, each of these moves was announced publicly months before this transition. The execution bench is not a reaction, it's part of the plan. Okay. The only guy that hasn't been introduced is me. I'm a Chemist and Physics Major from Dartmouth. I was on the Board of Trustees of Dartmouth. I came to Stanford for graduate work, got MS(EE) and PhD(EE) there. I worked in 2 Silicon Valley companies in the line, making wafers. I started Cypress Semiconductor in 1982, and I was 34 years at that job, which is a record. As you might imagine, there's kind of a turmoil out here and a lot of turnover. And I settled in. The reason I settled in was my job changed every year, and I realized that. So I didn't become obsolete, as a techy geek who couldn't run things, at that transition point when it came to getting technologies better than me in certain areas. I got them. They work for me, but I didn't do that job anymore. At the end, I worked primarily on financial relations with investors and with people that funded us and I worked on quality, about almost half my time on quality.

I turned around Enphase. That was one of my projects after I left. And in Enovix, I've got 22 million shares, 21 million invested. And I've been on the Board since 2012.

Okay. You've seen these people way better than me reading it to you. Status of our markets, Smartphones, Smart Eyewear, Drones and Defense. This technology is artificial intelligence technology #1. So this is the process, if you will, [indiscernible]. AI requires a lot of energy because it burns a lot of power. It requires the ability to put up power. And it requires energy density, which is a conflicting requirement all in one package. And our first-generation technology is what will make smartphones and eyewear with. And then we have the technology from Korea. We put a turbocharger on it. We put 20% silicon in the Korean technology and now for a standard technology a state-of-the-art. And they know how to make stuff, and they've got good quality and it's a well-run plant, didn't fall apart when K.H. left, and we're all happy for that.

So now what I've got is our latest accomplishment. What we have to get done in 2026 and what our status will be or what we have to do by Q4 for each of our 3 technologies. I'm in the process right now of mapping all of our R&D projects under these 3 main vectors in the company. So the big news confirmed by the lead customer, the life cycles. The problem that is in the end of the journey is because we deliberately make batteries with high energy. That means they last for a long time. That means you don't run out of power at 4:00 in the afternoon. That means if you charge it, and discharge it, it takes half a day. So if you run the thing to the spec, you end up getting 2 charge/discharge cycles per day. So if you want to check to see if it works for 1,000 cycles, you get yourself a computerized system for charging and discharging.

You put the new batteries into it, that have the latest experiment, whatever it is. And then you wait 500 days. So that's the tyranny of this problem. This problem happens in semiconductors. The solution in semiconductors is called burn-in. So instead of trying to operate a chip for 5 years, under normal conditions, 70 degree centigrade inside of some box. We run it at 125 degrees centigrade, and we exercise while we're running it. And that's how the 5-year cycle of does the chip -- is the chip reliable turned into a 6-week cycle of testing the part at high temperature.

So what we need to do is get final cycle life tests completed. And how do you do acceleration in batteries? Well, you charge them faster. So instead of charging and discharging twice per day, you charge 7x per day, then your time to get information is short. Even though it's not good enough. And I'm going to call for R&D to move faster today. But we now have a customer who believes the battery works. We now have to agree on a test, which is being worked on jointly with us and our customer. [ Honor ], a teaching customer -- they used to be a highly valued customers in semiconductor world, where the company you're selling to knows more about something you do and they're willing to share with you. And Honor's done that for us.

And then in Q4 26, we need to sample a second cell phone OEM probably in China. So this is status nearing goal, yearly goal and nearing goal, Smart Eyewear. We're now shipping our first order. And you heard before from Ed, he said I specialize in starting with thousands going to millions. And that's exactly where we are here. We got a hard order for 50,000 units, and we're shipping it now. We have to ship 19,000 of those units in this quarter we're in right now. And then, of course, they use it, what they'll do with it is, they'll make 50,000 cell phones or some fraction of that, give them out to everybody and test it, make sure our stuff works exactly right in their environment. They can't afford to spend millions of dollars and ship samples, and then have to recall them, it would be a disaster. So -- and when they look at making sure stuff works, they look at a lot of stuff. They're very thorough.

And then what we're going to do for them, we have Artificial Intelligence Technology 1. We have AI2. That's my brief case. Somebody hop on over there and push a button, please. We've got a phone call coming out of my briefcase. AI2 is a more advanced version of AI1, that has 20% more energy. So instead of that, we brought it out, it's louder. My fault. Okay.

So we're raising the energy density. This is when we get into these companies and they're big household names. When we get into these companies and the other guys are trying to copy us, we've taken a step before they get there. That's playbook of [Andy Grove] at Intel when Intel was king of semiconductors. Third, drones and defense, give you one piece of these numbers are all the most relevant number today. From nowhere, we've got a $183 million backlog. And that's our pipeline, and it was up 41% Q2 '26. So we're the high energy, high performance, American battery company, and we've been dealing with defense actually for years. We are -- I won't go in it, but there's a vest that soldiers wear. That's the electronic vest that means you can track individual people. It's got batteries and pockets in it, and we supplied that as an early DoD experiment.

Because of this, we're going to have to increase our capacity in Korea right now, the Korean factory is a $40 million outfit, and we're in the process of upgrading it to $100 million. And it's actually pretty economical to do it. The ROI in this is very high. And today, this is a name of a program in the government, I forgot the acronym. What they want is 100% non-Chinese capacity, and we can do that. So we're just going to grow this and do whatever they ask us to do. We're going to deliver this order and be ready for the next order and actually get a second customer here.

Okay. So my agenda. So I heard about this thing last Thursday, this is Monday, and you might guess Saturday and Sunday were workdays for me. And I had to think, first of all, I'm familiar with the company for a long time, but I had to get into the details of what I need to do, and that made me think, for executive staff discussion, what is right that we need to preserve and what needs to get better.

So what I like, cycle life works after 14 years, I got to say it again, that ought to be in capital letters that are bold. I like a strong executive staff, so I came in thinking, "Oh my God, how are we going to do things?" And they told me, I didn't tell them. And my conclusion is the staff can run the company with no hiccup. Meaning I do not expect any of our guidance or customer relations to change. The one that we're worried about is our Chinese cellphone companies, and we're actually -- Raj has agreed to take some time off his new job and go to China with us and personally introduce us to the people he brought to the company in the cellphone world. We're going to send 3 of our top executives from this room. And then 3 of our Board members will be on electronically. So we'll have a group of 6, telling those guys, we like and we appreciate their help, and we want their business still.

Okay. What I need to fix or maintain. One, Investor Relations. I've always thought of this. I've always griped about it. And if Raj and I had one argument over and over is this. I don't like the reports. I don't think they're clear. I don't like verbal parts of it. They're not transparent. They're not what I think investors deserve. Second, because we're an R&D company, we have 1,000 employees, and we've never thought carefully about can we afford 1,000 employees, 1,000 employees earning $40,000 per employee per year. Starvation wages in any technical business is $300,000 per employee per year. Once you get to $400,000 per employee per year, it can run a manufacturing company with profit. And we need to get there. It's not in the cards on a monthly basis, but we need to install business processes to start moving the company in that direction. We've already installed one. It's a process called requisition auction and the discipline is simple.

Every week, 1 or 2 people leave every company. And instead of just replacing them, those requisitions become valuable property that is -- it's called the requisition auction that are "auctioned off" to the executive staff. So you come in and say this week, we get to hire 2 people. And then the staff says, well I need this guy for this, that guy for that and you find out you want 5 people. And then the answer is no. We're going to get 2 this week, and we'll wait for the other 3 until we have other resignations, then the people that need it the most. The -- it's a very powerful process. It's been embraced actively by the company, is being used. It allows the CEO, any CEO to climb in the pilot seat and have a dashboard right in your face to choose -- to manage every single week.

So that's one tool we're going to use. I won't take time, but there are several tools like that, that exist here. They've been embraced, the employees like them, and that's how we're going to do it. We lose $100 million a year. And if we didn't have the giant bank account, that wouldn't be okay. Now the argument is you have to invest $100 million a year. This is big, big leaks. You're competing against multibillion-dollar companies, and you have to have the R&D that size. Hence, 147, 158 R&D employees. And I'm an R&D guy, and I'm not exactly a cost hawk on R&D. I will be reviewing it, but I can tell you what's going to happen. It's not going to grow. It's going to become better. And as people leave those organizations, they'll be replaced by at the time, we think are an upgrade. And over time, the cost will remain constant in a declining percentage of revenue and R&D is going to get more and not less effective. That's my experience.

With Chinese smartphone customers at risk. That's the trip, I already talked about. That's this week, Friday meeting in China. R&D is competent. Jon is a Stanford Ph.D., 30% of his people are PhDs. They're smart. You walk through the place, they got their nose in their computer and they're working. What's lacking is the next higher level of management which is to look at the portfolio of projects and ask, what are we doing? Why are we doing it? And should we be doing it? Right now, we have those three initiatives I talked about, and we have 20 projects. And that number needs to be less, and we need to be faster on fewer things.

We also need to solve the problem I talked about before in order to determine lifetime, which is our limiting factor. Does it make or not make the lifetime? We had to first cut it -- talk -- I said about fast charging, cuts it down to -- from 500 days down to 14 weeks. It's still not good enough, by about the factor of 5. And we have to do the next step, which is to cut it down. So when we do an experiment in 4 to 5 weeks, we can say it worked or didn't work, add it to the process or start looking for the next way to solve the problem, whatever it is you're trying to work on.

Maintaining active engagement. That's really here. Raj was a PhD and he did actively engage with manufacturing -- is a PhD and while he was here, he engaged with manufacturing and R&D deeply. We're talking -- this stuff is complicated. You can easily walk into a room, claim you're going to be out of there in 4 hours, and then decide to work a couple more hours so you can skip traffic. So I have to maintain that. And hours I'm going to spend here, most of those hours will be dedicated to that given the executive staff is going to need decision approvals more than decision-making from me.

Okay. I wrote this. I'm going to read it. That's the only thing I'm going to read to you. I'm not big on reading things, but this is wordsmith.

This is a CEO transition, not a strategy transition. Our Q3 '26 guidance stands. Our balance sheet holds $552 million in cash and the teams executing customer programs are unchanged, reporting to proven operating leaders we put in place months ago, the table here. Last quarter, we demonstrated 1,000 cycle life in our AI-class cell phone batteries, our AI1, Eyewear cell is shipping against firm customer orders and our MX-1 that's the Korean process, which is a typical battery process that we've boosted up with 20% silicon content in the anode, which we know how to do. Obviously, we do 100% now. MX-1 is building out for a defense market that is growing rapidly. The Board will run a deliberate search for a permanent CEO with no artificial deadline. That is if we don't find a hero, we're not going to act, especially if the team we've got here is working.

Meanwhile, the company needs to stay focused on execution for customers, factory delivery and financially. And right now, fortunately, all of these are working real well. And then we've got this meeting where we got to talk about the downside event that we have to accommodate. So that's that. Time for questions, and we'll take any question you ask and answer to the best of our ability.

[Operator Instructions] Please note that this call is being recorded. [Operator Instructions] Your first question comes from the line of Mark Shooter with William Blair.

One for Michael. Apple is amazing at leveraging contract manufacturing. And Enovix has 2 separate facilities and separate battery manufacturing technologies, the novel architecture being in the Malaysia fab. I think a question for investors is, once you get demand for the battery technology and you see POs occur, can the Enovix architecture scale profitably? You can make the cells on the Agility line, but as you move to the high-volume line, there's been some ambitious targets like 50% gross margins. So I'd love to know what your assessment is with fresh eyes coming in and seeing the unique manufacturing process and the unique Enovix architecture? And do you think that this process can ramp with economic yields?

So the one thing that impressed me most, I was in the factory last week, this is not a tremendously complicated process here. You can build these batteries with a relatively small number of steps. You compare this with AirPods, which is obviously a much more complicated product. So I actually do feel with high volume lines that we have planned here. With the yield improvement that we're doing, with the manufacturability improvements that we have already kicked off. And with the small number of steps that we have here, I think this could be a very profitable product.

Thanks, Michael. I appreciate that. And just a follow-up for K.H. on a similar vein. It's not often we get to interact with Michael and K.H. So now that you've seen -- you've been put in charge of both architectures, right, the traditional pouch cell that's in Korea as well as the Enovix architecture in Malaysia. K.H., I'd like to know what your impression of this manufacturability of this design is and how difficult you see the transition between the two and how difficult it is to yield out for stacking the thin electrodes versus traditional pick and place or Z-fold that you use in pouch?

That's for KH. That's going to take a while to get translated. Meanwhile, Michael, you can answer that question, too, right? Manufacturability of our technology versus standard pouch technology.

Yes, I don't have any concerns about the manufacturability. The way that we stack our electrodes is a relatively simple physical process. I've seen it myself done in the factory. And I see it just as manufacturable as the technology that's out there today, the legacy.

The problem has been from an investor point of view, we, including me, have made promises like we're going to qualify this company and be shipping by such and such a time. And those in retrospect, those questions were uninformed. That is we're on the edge of what works and doesn't work and it's like determining what quarter calculus is going to finally work. You can make a mistake on that, and we have. And then the next problem then is when you hit quarter X and the investors are saying "Where the hell is the stuff you promised us to make?" Then you need a reason. And the reason it's always been the latest problem.

The latest reason is laser. We have aligned what UPH is 1,150, what's the UPH? 1,350 UPH is the line design, and yet the lasers that take big sheets of electric -- cathode and anode material and cut them into the electrodes used in the battery are running at less than 100 units per hour. So the entire line is throttled down by factor of 13. And okay, so we got laser problem. So you come in and say, "Well, it didn't happen because of laser." Well, you got a PhD, you should know about lasers, and you don't. So right, we're hiring. We've hired laser guys. The problem was we were on the edge of what lasers can do and concluded about a year ago, lasers are not going to do what we need to do, and -- so right now, they can do what we need to do, but only slowly, and that's never going to get good enough. Because in order to get good enough, I need 100 of them at $1 million to $2 million each, all busily cutting away just to feed the line because the line is fast and sucks the stuff up and is gone.

So as you well know, and you guys are sometimes more educated than I like, we're doing it mechanically. So you think about punches, big machine that punches out a piece of metal and there's a corridor, and that's an ancient technology and it works. We're working on micro punches now that need to be accurate and can cut this material. And we've been working on that for 6 quarters. That is our way out. They are an order -- more than an order of magnitude cheaper than lasers, and you don't need a lot of them. So that's our solution. You guys got a schedule on punches in production?

We said multiple process steps around year-end would be in production.

So we're -- we've learned about getting beat up, so we're going like this when it comes to schedule. I review that project every quarter. And I think it's going to work. But these -- when you punch out a corridor, the error in which you punch out, it's maybe 0.5 millimeter, which sounds like a small number, but on the scale of a battery. It's not a small number. It's a big error. So we're having to run punches at accuracies that they're not used to 0.1, 0.2. The stuff we're punching is one of them, is lithium cobalt oxide. It's -- think rust. Iron oxide is rust. This is cobalt, right, the same area in the periodic chart and you oxidize it, and stuff is hard, and it's abrasive, and the punches have a hard time with that. So we're working our way through that, but that is an easier problem to solve for sure than the laser problem. And I'm not using it for an excuse. I'm just saying this is where we are.

Your next question comes from Colin Rusch with Oppenheimer & Co.

Can you talk about the history of the existing team with those cell phone customers? I appreciate that you guys are going over there to get embedded with those folks. But I want to get a sense of that relationship? And then I have a follow-up around the technology, on the smartphone technology landscape.

Yes, I'll take that. Yes. So Colin, first, from a relationship standpoint, when we started engaging with these customers, say, about 3 years ago, I've been in every single meeting with Raj. We have our existing relationships not only at the leadership level but also at working levels. So we have our CTO, who comes from ATL. He's worked with these customers in the past. He's been actually, in some cases, their leader in the past. So we have a very good relationship at every level that you can imagine.

Both on the technology side, on the business front and at the leadership level. And as I mentioned, Raj and I and with Ryan and Michael and few others and Board members, we're going to meet with Honor's leadership team this week. So I'm not worried at all about the relationship. And ultimately, it's a product that has to sell. We're working towards that. We have to qualify the product and that's well underway. So we have at least 3 years of history with these particular customers and in some cases, in Huawei's case, many more years.

An asterisk on that one is, the other consumer product we have are Eyeglasses, and they're a very high volume. And in that case, instead of talking about what machine doesn't work exactly right, we can make those things to their spec as we speak, and we're shipping our first order. That's the order that creates samples for them and eventually turns into a big order as in scaling up. So -- you got to remember, we now have two directions that we can go with the same technology, just two different sets of tooling on machines.

And then on the technology landscape, obviously, the delay has allowed some of your competitors to continue moving forward with a variety of solutions. And some of the suppliers are common, just even with different architectures. I want to get a sense of how quickly those folks are cycling and potentially putting you guys at risk around some of those cell phone customers?

So I have a director in the room who wrote a memo last week about the bad guys are catching up, look behind you. And it's true. The -- if you go look at the learning -- the lifetime learning curve of lithium ion batteries, their energy density increases 6% to 7% per year. And we have recently compared our energy density, which has met our target of 900, it's actually 935 watt-hours per liter. So power -- energy per unit volume, that's the right thing. And we're about 15% ahead of them, maybe 12% ahead of them. That's 2 years, and it matters. That matters. If somebody's got a thing -- they're not getting the energy they want even from the best battery, that's something they'll pay for.

The other problem we've had is that we know how to get over 1,000 -- well over 1,000. But the problems of manufacturing, transfer to manufacturing, we've talked about, kept us working on the old technology and will keep us working on the old technology for a while. But we also have a future in front of us and the things our competitors will use to get better. New cathode material with slightly higher voltage. New anode material with smaller volume to store the same amount of lithium. Those are available to the world. And as they improve 6% per year by taking those -- using those, we can do that, too.

Right now, we've locked down our materials so we can go into production, well-known thing, if you want to never get in production, just keep -- let the R&D guys keep changing stuff while you're trying to get in production. So yes, they've caught up. Yes, the factor of 1.5 or so that we had back when has gotten narrower. No, they haven't caught up. And also it's become real important to be an American company that's new and different since we started this.

And maybe I'll just add a couple of points to that. So as T.J. mentioned, number one is the technology road map, right? It's -- they know how we operate. They know what we can offer in the future. They know historically how our competitors have been able to add energy density year-on-year, and they are reaching to the maximum mix of adding silicon doping to their product. So that's one technology road map.

The other thing I'd say is that technology is one dimension and performance is one dimension to make us a viable supplier. No customer, no OEM likes to have concentration on just one supplier. So -- and these guys have invested a lot of energy, a lot of resources over the last 3.5 years on us as a supplier. So they are really invested in terms of making us work and making sure we're successful. And that's why they're a teaching customers. That's why they're helping us. From a spec standpoint from qualification, they're cutting corners, they're doing all of that to make us successful. And the last piece, as T.J. mentioned, is really aside from the Chinese OEMs across the consumer world, across the defense world, everybody wants a diversification of supply. So -- and we are very well positioned for that.

So Samira alludes to another technical point, the way competitors are catching up through silicon. The problem is, your battery blows. I showed you a battery getting turned into mush by lithium ions. So with those batteries when you start throwing silicon into the battery, eventually, their battery will blow up, and they don't have a containment case like we have that holds back 1,000 pounds per square inch from blowing the battery up. And the best of them, they used to put in 5% silicon in their graphite. The best of them is 32% in Korea, the best we were able to do in a conventional technology is put in 20% of the best known silicon that makes them better. But that's it. They're running out of room. So they're using up a kind of a onetime resource there as well. We're already at 100%. We need to make it work right and start shipping it.

Your next question comes from Ruplu Bhattacharya with Bank of America.

Does Raj's departure in any way change the relative ranking in your minds of these end markets, smartphones, eyewear and defense? In terms of the relative revenue opportunity from these and how you want to spend R&D with respect to each of these end markets. And I'll ask my follow-up at the same time, what qualities are you looking for in the new CEO? And how are you trying to go about this? And Samira, I know you said that Raj is going with you to China. You've been beefing up your organization in terms of salespeople? Do you think that his departure means that you would look for more talent or people with more contacts in the smartphone space, do you see more hiring coming?

First of all, we've launched a search, but you have the spec for a search right down what the guy needs to be. Well, he needs to be a PhD if he has Raj's old job. I'm a PhD and I understand this stuff. But he doesn't need to be a PhD, if you've got -- people we've got -- many ask yourself what does he need to be? And the answer is, he either is the best guy you've ever met that ran the most enviable battery or fuel cell company, fuel cells are close cousin to batteries, difference being a battery, you have a closed system, and you move stuff back and forth to get power to fuel cell. You inject stuff in and there's waste product coming up, but they work the same way. Best fuel cell guy or the best battery guy, run a company, understands it all, technically cognizant. And that person, as you might guess, is really hard to find.

Alternatively, with the team we've got, if we make progress while we're searching for Mr. Perfect or Ms. Perfect when the team -- if the team is executing then we can go look at the skill set we need where this guy is exactly what we need. And in terms of customers selling, Raj was that guy at the time we brought them in. Now we need to make sure the progress he made doesn't get squandered.

If I could jump in and chime a couple of things. Ruplu, thanks for the question. I think we said multiple times in the presentation. I don't think it changes the strategy, one bit. So the priorities we laid out 1, 2, 3 in the slide. In terms of the level of investment, we're going to continue to evaluate that. And certainly, the defense and drone market is a very capital efficient for us to scale on that capacity there. So we're -- we've made -- we've taken action in the last 2 weeks in order to accelerate that capacity expansion.

And I don't want to speak for Samira, but in terms of the team, we put a little Easter egg in the presentation last on August 12, where we talked about a very key sales person that we hired from one of our competitors that's in-country in China that is going to be really important to that sales effort and that person is going to be joining us in Hong Kong and China later in the week for when Samira and I go there.

Yes. I'll just add that from an organizational standpoint, as we discussed last week, we are very well staffed. I don't anticipate Raj's departure to change anything. We -- on the commercial side, we are going after all these 3 segments with an equal amount of aggression and we're aggressively following up to make sure we execute and win new customers. So I don't anticipate any changes from a staffing standpoint in the next foreseeable future. And we will assess it later on where we make more progress.

One of the things, to use the word blind spot. We spend too much money. We're not focused enough on cost. And the reason is you guys have given us a lot of money. And then we haven't had to focus on it. Other companies, I mean, we got to focus on money literally every morning. So I won't say we're recklessly overstaffed, but we certainly can lower our staffing by attrition in the process I described earlier. We can understand that the losses and $100 million a quarter are not sustainable. I mean if we just went straight on, we have 2 to 3 years left, and that's not good enough. So we're -- that's what I do. And by the way, semiconductors, after you get all done, can you make Moore's Law, 55 nanometers work. The next step is, can you make it as cheaply as Toshiba does and now as the Chinese companies do.

And that's what I did. I remember very clearly, we were arguing about cost reduction, and I was listening to blabber. So I went in my office, and I did a calculation what would happen if the wires, the little hair-fine wires, used, let's say, 30 per chip, 30 wires to bond the chip into a package. We're 100 microns in diameter, rather than 125 microns in diameter, which was the industry standard at that time. And given that we put on billions of wires a quarter, the number worked out to be an important number. The argument from engineers, who didn't want to change it was, well, we'll have impedance, we'll have IR drop, the chip won't work as well. So I did a calculation that's very calculable. So then the guys who didn't want to do anything, as a first reaction went against the guy who actually did the work in calculation, and it was b******. We're going to do this. And then all of a sudden, no, okay, we get it. We have that moment here now. We -- there's a section of our process, which is very expensive.

It's called pre-lithiation. It basically is to put more lithium in the package because their cycles use so much lithium going back and forth that the materials you get upfront don't have enough lithium in them and you have to add lithium. Well, we figured out how to get rid of that. And that will get rid of a big chunk of the machine, a big chunk of the time and will add dramatically to yield. So there are many ways to work on cost. And if you have your mindset on those who aren't economic, won't make it, then you work on every front simultaneously all the time. And I know how to do that. That's the way chip guys have always worked.

That's why there's only 3 or 4 chip companies left in the world when there used to be -- when I came into the industry, 110 chip companies in the U.S. alone. There are now about 4 in the world that are left, and they're the ones that can stand in discipline of cost reduction, node-to-node-to-node. We don't do that here. We're not profligate spenders. People do think about economics, but not enough. And when I review the 20 R&D projects, I'm going to review next week, I'm going to be looking at, in particular, on projects that reduce costs.

The next question comes from Gus Richard with Northland.

Yes. If I get everything right, you guys have got a UPH of around 100 today, making some assumptions on yield and ASP, you're probably low single millions of revenue in the line in Malaysia. And I'm just wondering, do you have a sense of when you can get that in order of magnitude up from where it is today?

I think what's important, we've talked about the mechanical dicing project, which we've been working on for several years is expected to show through at the end of the year. That's going to -- that's the bottleneck right now, and that's going to unlock the rest of the line in terms of throughput.

And let me give a pre-excuse. As soon as we get rid of that bottleneck, and we've got a machine that's running like a newspaper line printing stuff, then we'll uncover the next bottleneck and after we uncover that one, then we'll find the next bottleneck. So it is a journey, not an event, to make a high-performance line run quickly. I actually have a patent on automatic lines for assembly and test in manufacturing and Cypress used them. We had 10 lines. They worked, they made money, and we had 10 lines. So that's the journey. So there is no date. There is no magic event. It's basically getting your R&D focused on it and having all of your projects score some cost points along with their other objectives.

Would you eliminate that first bottleneck, is it a doubling of throughput or sort of how do we think about how much you can incrementally improve the throughput once the first bottleneck is out of the way?

So why don't we let our Berkeley PhD answer that so you can put stuff up on the hook, and I'll write down whatever he says.

As we talked about earlier, the laser dicing process is so slow. It's by far the overwhelming bottleneck, and once we remove that, yes, there will be more. But we're going from something that's much less than UPH 1,350 that we want to achieve ultimately 1,350. So it's more than a doubling from where we are today once we alleviate the laser-dicing step and move towards the punch.

And look forward to the progress. And that, by the way, is to find out some other step. You exercise the speed because you never got enough through exercise and speed, that's when you find the next step. One of the ways to get around that is you -- is batching material after the slow step and getting a bunch of it and then running it 24/7 through the line as fast as you can go. And you can find a year early where the next bottleneck is going to be and start working on it. And we will do that as soon as we get the ability to dice. Right now our ability to dice, limits our ability to sample and a lot of people want samples. And we're not going to give up sampling in order to get a preview of where the next step in our line is going to bottleneck. This is something I knew how to do. This is something that trust me. I got you on that.

Thank you. There are no further questions at this time. With that, I'd like to turn the call over to T.J. Rodgers for closing remarks.

Well, I thought carefully about my closing remarks, wrote them down, edited them 5 or 6 times and then read them to you. We've made remarkable progress, and unfortunately, this issue reasonably clouds it. When I interviewed the team to find out where do we go, they all had answers, and they were all dedicated and we're working on a common plan to go forward, which is the same plan. We haven't changed much in the plan. So I would like to beg your indulgence. You will see by the end of this quarter that we're on the same economic plan. It's not a wonderful economic plan, but it's a step forward. And we will show you the progress we're keeping. We will keep you informed on the 3 different vectors we have for high-volume manufacturing and talk about the market and products for each of those and we'll talk about it face-to-face, not a script, recorded. We'll talk about it face-to-face and let you guys gripe, if you don't like it. And then we'll answer your questions if we can.

Thank you for standing by, and welcome to the Enovix Corporation Second Quarter 2026 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, Monica Gould, Investor Relations for Enovix. Please go ahead.

Thank you, operator. I would like to welcome everyone to Enovix Corporation's Second Quarter 2026 Financial Results Conference Call. Joining me today are President and Chief Executive Officer, Dr. Raj Talluri; and Chief Financial Officer, Ryan Benton. Raj and Ryan will be speaking to the slide presentation displayed on today's webcast. which will also be posted along with our press release on our Investor Relations website at ir.enovix.com. They will provide prepared remarks, and we will then open the call for questions.

Before we begin, please note that today's call contains forward-looking statements that are subject to risks and uncertainties. These statements are based on current expectations and may differ materially from actual future results due to a number of factors. For a discussion of these risks, please refer to the disclosures in today's press release and our filings with the Securities and Exchange Commission. You can also find these materials on our IR website.

All statements made on this call are as of today, August 12, 2026, and we undertake no obligation to update them, except as required by law. During the call, we may also reference non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in the materials posted on our IR website.

And with that, I will turn the call over to Raj.

Good afternoon, everyone, and thank you for joining us. The second quarter showed momentum across all 3 of our primary target markets.

In smartphones, we reached an important qualification milestone. Our lead customer confirmed that our cells passed more than 1,000 cycles on the 0.2C discharge cycle test. We have one final cycle life test, and it's already well underway. We expect to finish remaining testing by the end of 2026 and with the customer acceptance and smartphone field testing to follow.

In smart eyewear, the production ramp of our lead customer has begun. We shipped approximately 2,100 batteries to a Tier 1 customer, recorded our first smart eyewear product revenue from this customer and expect to deliver roughly 9x that volume in the third quarter.

In drones, defense and industrial, we grew the pipeline by 41% from the first quarter. Drones led the way, we advanced product development and the drone pipeline alone exceeds over $100 million [ in Enovix ] now. Revenue for the quarter came in at the high end of our guidance, and we expect continued sequential growth in the third quarter. What is increasingly clear is that Enovix has multiple paths for growth that reinforce one another. Our 100% silicon anode AI platform is progressing towards smartphone deployment, while smart eyewear has entered commercial production. That sequencing is by design.

From the start, my strategy has been to go after the hardest market first, smartphones because meeting the most demanding energy density requirements forces us to build the best product. Everything we prove at the smartphone level then flows naturally into adjacent categories. Smart eyewear is the clearest example where the same platform is now shipping commercially.

Meanwhile, our MX platform takes that same silicon know-how and manufacturing discipline and aims it at defense, a big, fast-growing high-value market. Our established South Korea operations are serving defense and industrial customers today and their extensive experience with drones in particular, is opening substantially larger opportunities.

Briefly on the 2 platforms. The AI platform uses our proprietary 100% silicon anode architecture for space-constrained applications where the volumetric energy density and cycle life are most critical, while the MX platform blends silicon with graphite for greater gravimetric energy density and high-power performance manufactured at our proven facility in South Korea. These are not isolated businesses. They are mutually reinforcing.

And we're seeing this convergence translate into new areas for growth today. We are working on silicon blended opportunities beyond our traditional drone, defense and industrial markets.

Drilling down a bit further, First, on smartphones, we moved materially closer to completing qualification with our lead customer. The customer has now confirmed the cells passed more than 1,000 cycles under the 0.2C discharge cycle test. This is the same test our internal testing indicated when we shared it with you in February. The customer's own data has now borne it out. Fundamentally, this is a customer-confirmed evidence that the silicon anode batteries can perform at high levels.

Remaining work to be done is an accelerated cycle life test built around a hybrid protocol we defined in close collaboration with our customer to replace the traditional 0.7C testing approach for legacy graphite batteries. Testing is now live across several combinations of charge and discharge conditions as well with an enhanced cell design. And the same progression is underway. The enhanced cells are now showing stronger capacity retention and internal work and the data is now with our lead customers' hands for evaluation along with multiple variants of the hybrid protocol. We anticipate completing this final test in 2026.

Our second smartphone OEM is also moving towards a similar qualification framework, and we expect to begin sample deliveries in the fourth quarter. As we look towards 2027, we see the pattern repeating and expanding, our lead customer moving into commercial introduction with our second OEM advancing through qualification and additional leading OEMs with whom we are in active dialogue entering the qualification pipeline behind them. We pioneered the qualification testing pathway for silicon batteries and smartphones, so every customer after the first gets a faster, clearer path to execution and deployment.

I'm especially proud of our progress in smart eyewear, which has now moved from initial production into early commercial revenue with a Tier 1 customer. Recently, we completed a key international safety certification of our cells and battery packs as well as a full suite of customer reliability test. We shipped approximately 2,100 AI1 batteries in Q2 and recognized our first smart eyewear product revenue.

We have now delivery orders in hand for approximately 19,000 packs, which we are planning to deliver in the third quarter, a roughly ninefold increase from Q2. Those delivery orders are part of the customer's 50,000 unit pack order we expect to ship the remaining balance in the fourth quarter. Beyond 2026, we expect shipment volumes to grow as our customers' downstream deployments expand.

Turning to our defense sector. I'm proud of the team's execution from initial product launch in the first quarter to a substantial increase in our drone pipeline in the second quarter to customer sampling beginning now in the third quarter. The pipeline for products manufactured in South Korea increased 41% to approximately $183 million from the $130 million at the end of first quarter. As a reminder, this figure represents the estimated peak annual production value, the lifetime opportunities often many multiples more.

More than half of the growth came from growing opportunities, which now exceed $100 million on their own. Let me walk through what's inside that number. Because the funnel you see on the slide, more than $40 million of this pipeline is at stages where customers are actively evaluating and testing ourselves or designing them into products. And the breadth is striking, including some of the most recognized names in defense technology and consumer electronics.

We also introduced MX-1 to a broader set of customers and industry events in the United States and Europe. At approximately 360 watt hours per kilogram while supporting high continuous and pulse discharge, MXB01 (sic) [ MX1-B01 ] is designed to improve mission execution, flight time, range and payload capability. We've already ordered additional production equipment for the MX1-B01, and we expect it to be operational by mid-2027 with initial commercial shipments and revenue expected to follow as that capacity comes online and customer programs complete qualification.

This pipeline growth is also a commercial execution story. For the past 2 quarters, we've been deliberately building out our commercial organization, adding application engineers and product management talent, and we then brought in Steve Bakos, a seasoned sales veteran with more than 35 years in the global semiconductor industry with most recently running large global accounts at Infineon to lead our sales and application engineering teams under Samira Naragh, our Chief Business Officer. We are seeing the early results in that funnel.

Our South Korea operation is a meaningful advantage in pursuing these programs. It combines an established history serving defense customers with in-house manufacturing, quality and supply chain capabilities in a TAA-designated country. Our South Korea supply is TAA compliant today and ready for the expected mid-2027 capacity ramp, and we expect NDAA compliance across multiple product SKUs.

In July, our drone battery completed UN 38.3 transportation testing, creating an important step for commercial shipment, and we are commencing sampling with numerous customers in the third quarter. The next phase of Korea capacity is expected to come online in mid-2027, a very capital-efficient expansion, utilizing existing land and buildings we own and using readily available equipment.

The economics are attractive as well. ASPs are healthy. And because we own our own manufacturing, we believe the scaled volume can support solid margins. Beyond the current product, MX-2 remains targeted for 2027 with the goal of reaching 400 watt hours per kilogram.

Let me now come back to the AI technology platform. We produced the first AI-2 engineering samples in the first quarter. AI-2 is expected to provide approximately 20% higher volumetric energy density than AI-1 by combining thinner materials, better packaging efficiency and higher cathode voltage through our EX-3M technology node. We sampled cells to 1 Tier 1 smart eyewear customer in Q2. Many of the same EX-3M innovations are expected to carry into the future smartphone batteries and support another meaningful step forward in performance in that area as well.

I want to give you some insight into how our pace of innovation is also accelerating as it is something I'm particularly focused on. In batteries, the grading factor on development speed is cycle life testing. A full cycle life test has historically taken 4 to 5 months that sets the tempo of learning in the entire industry. We are developing AI models that can predict cycle life outcomes much earlier in the cycle life test than has historically been the case.

Our models for eyewear cells are getting close, and we're making very good progress on smartphone cell modeling as well. To be clear, customer qualification will always be the physical test, but this is about how fast we can learn and iterate internally. If we get this night, every design generation ramps faster and that speed itself becomes a durable competitive advantage.

Turning to manufacturing. The second quarter showed continued improvements across Fab2 with particularly strong results through most of the smart eyewear production flow. In fact, our smart eyewear cell output came in well ahead of our internal plan for the quarter, and our integral yield, the cumulative yield across the entire production line has now improved for 3 consecutive quarters.

Outside Zone 1, all but one process step operate at yields of at least 95% with individual steps as high as 99.6%. Zone 1 dicing remains our primary throughput bottleneck and a top focus, but the yield has improved to approximately 84% from 80% in the first quarter. Zone 1 has been a suborn constraint for a long time. This is exactly why we changed the approach rather than simply tuning it.

The hybrid dicing configuration uses laser and mechanical processes where each is most effective and is designed to lift Zone 1 throughput to multiples of today's rate. The step change we need to support the production volumes we are planning for 2027. Several of the key mechanical dicing steps are expected to come online around the year-end.

Supporting all of this execution is our growing team in India. A team in addition to conducting advanced research directly supports manufacturing execution at both Malaysia and South Korea factories.

Finally, I want to spend a moment on leadership because I'm thrilled to have Michael Vyvoda on board as the Chief Operating Officer. Michael brings decades of operations experience, including at Apple. He has a full scope mandate across manufacturing, supply chain, quality and customer delivery. His immediate priorities are increasing smart eyewear output, preparing manufacturing for smartphone field test builds and driving the cost, yield and delivery output improvements underway. Adding Michael gives me even more confidence that we have the right team for the next phase of scale.

With that, I will turn the call over to Ryan to review our financial results and outlook.

Thanks, Raj. We delivered another quarter of revenue growth and positive gross profit. We came in better than our operating loss guidance, and we ended the quarter with over $550 million in cash on the balance sheet, all while continuing to invest in the customer programs and manufacturing work that support the next phase of commercialization.

Second quarter revenue was $9 million, up 21% year-over-year and 19% sequentially at the high end of our guidance, our fifth consecutive quarter of year-over-year revenue growth. Defense shipments from South Korea remained the largest contributor, while smart eyewear generated its first product revenue, modest in amount, but an early proof point of contribution from AI-powered wearable devices.

GAAP gross profit was $1.3 million and non-GAAP gross profit was $1.8 million, representing GAAP and non-GAAP gross margins of 14.4% and 19.9%, respectively. The year-over-year decline in quarterly margin primarily reflected the mix of battery products sold through our South Korea operation rather than a change in underlying execution. Even with that change in mix, this was our seventh consecutive quarter of positive gross profit on both a GAAP and non-GAAP basis.

And the first half non-GAAP gross margin was up year-over-year to 22.8% from 21.3%. Non-GAAP operating expenses were $30.6 million compared with $28.8 million a year ago. The increase reflects continued spending on smartphone qualification, product development and manufacturing readiness, including support for the smart eyewear ramp. Non-GAAP loss from operations came in at $28.8 million, better than our guidance range of a loss of $29 million to $32 million.

Adjusted EBITDA was negative $18.9 million compared with negative $20.1 million in the second quarter of 2025. And non-GAAP net loss per share was $0.13 at the favorable end of our guidance range of a loss of $0.13 to $0.17 and unchanged year-over-year.

Turning to cash flow. Net cash used in operating activities was $21.8 million, down from $25.9 million in the second quarter of 2025. And free cash flow was an outflow of $31.4 million versus $33.8 million a year ago, both better year-over-year despite higher capital expenditures supporting our manufacturing scale-up. The operating improvement primarily reflected favorable working capital changes.

Capital expenditures were $9.6 million, principally supporting manufacturing readiness and capacity expansion. We ended the quarter with approximately $552.1 million in cash, cash equivalents and marketable securities, including restricted cash. That liquidity allows us to fund the qualification and commercialization milestones already underway while preserving flexibility for selective strategic investments.

We did not repurchase any shares during the quarter. Our capital deployment priorities remain unchanged, product qualification completion, disciplined manufacturing investment and commercial execution.

For the third quarter, we expect revenue between $9 million and $10 million, up approximately 13% to 25% year-over-year. The range assumes continued defense and industrial shipments from South Korea and a significant sequential increase in smart eyewear deliveries. We expect non-GAAP loss from operations between $29 million and $32 million and non-GAAP net loss per share between $0.13 and $0.17. We expect capital expenditures between $8 million and $12 million, primarily for Fab2 initiatives and South Korea capacity expansion Raj discussed.

As always, quarter-to-quarter revenue and gross margin can vary based on product mix, customer delivery timing and the pace of qualification and commercial program ramps. For the third quarter specifically, 2 factors will shape gross margin, product mix in our South Korea business and the early cost of the smart eyewear ramp before volumes reach scale. We will continue to manage spending with discipline and align our investments with measurable customer product and manufacturing milestones.

And with that, let me turn the call back over to Raj for some closing thoughts before we open the call up for questions.

Thank you, Ryan. This quarter, all 3 of our markets moved forward at the same time. Smartphone silicon batteries passed a critical milestone; smart eyewear entered its revenue generation stage; and our drone and defense pipeline is growing rapidly. The milestones to watch from here are just as clear, completing the final accelerated smartphone qualification test, initial sample deliveries to a second smartphone OEM, the smart eyewear ramp, converting drone and defense opportunities into design wins and continued improvement in manufacturing, throughput and cost.

With that, operator, we're ready to take questions.

[Operator Instructions] Our first question will come from Colin Rusch with Oppenheimer.

I just want to get a sense of volumes as you start to ramp the eyewear business line, how do we want to think about total volumes to get to that optimal margin level? And how many quarters do you think it will take to get there?

Yes. Thank you, Colin. I can take a shot at it, and then Ryan will add some more commentary on margins and so on. Firstly, we're actually very pleased with the progress in manufacturing on the small cells, right, going from a few thousand packs to now roughly 19,000 next quarter and on the way to fulfilling a 50,000 pack order. This shows our confidence in manufacturing of the cell on our technology platform in our Penang fab. And I'm really proud of what the team has done there.

Look, the market itself, as I said the last quarter, the market is multiple millions of units and expected to grow year after year. We are sampling now to different customers who are in like various stages of building the products. Exactly how much we'll ship will depend upon how successful their products are and what share we win. But I can say this, the feedback we've got from the customers is the cell has been very strong, mainly driven by the energy density we provide in the small form factor. And it's translating into much longer battery life, particularly with AI running on these glasses.

So maybe, Ryan, do you want to take on the margins and?

Yes. No, that's fair. I mean, look, not to be repetitive, but we shipped 2,100 units in Q. The absolute revenue from that is nominal, of course. On pricing, specifically, I'm not going to quote a number there, particularly because we're dealing with one single important customer. And so I can't really go into those economics. But what matters for us really, I consider most important is that we build scale is that we get into a position of incumbency into the growing market. We want to be the default better of choice for smart eyewear, specifically kind of finishing off on margins.

Of course, even at the 50,000 unit level for the year, that can absorb the overhead burden that it will face as those costs start to move in geography from operating expenses up above the gross margin line. So we expect it to be negative margin for the balance of the year. It really as we ramp ultimately as we get to some version of scale, and I'm not going to quote a specific number of what the breakeven point is. Raj talked about the market growing as the customer adoption, the pull-through starts to happen, we do expect to have healthy gross margins.

Okay. Excellent. And then in the drone market, obviously, there's a lot of different applications. And so I want to get a sense of how you're sitting within that opportunity and which applications you're competing well on? And what are the key drivers -- which products are really driving some of that progress that you're making in that end market?

Yes. On the drone market, we are seeing tremendous amount of interest from many customers. One of the main reasons is we now have an extremely competitive cell with -- there the main metric is watt hours per kilogram. And that cell actually is made fully in our own factories. And it's a TAA-compliant country in South Korea, and we expect it to get to NDAA compliant path across multiple SKUs in 2027.

And this factory, you might remember, Colin, has more than a decade of production history on this site, so into military applications. The main markets we are getting into there are markets where they want a few hundred cycles, for example, of flying time and also safety, public safety, interceptor drones, ISR and markets like that. These are the markets that I feel like have a good margin profile and a lot of demand.

And our expectation is that the demand is actually going to outstrip the supply here very quickly with many, many customers wanting that. And we are super excited that we have this -- our own factory that we're able to make it in where the margin profile will be really good. And we are adding more capacity there. And as I mentioned in the prepared remarks, we expect that capacity to come online in mid-'27.

And if I could chime in as well. I mean, as we go through the names of the pipeline and look at it, these are some of the best companies in the world. So some really exciting opportunities. Of course, drones is a big portion and the majority of that funnel that's building right now, we expect that to be strong for many years to come. But then there's other technologies that we think will build right on top of this. So I think robotics is another example that we look a few years out, we think it's going to be a big market as well.

Your next question will come from Ruplu Bhattacharya with Bank of America.

Can you guys hear me now?

Yes, sir.

I had 2 questions. Raj, now that both the lead smartphone customer as well as the second smartphone OEM, they've moved to a silicon-specific qualification framework. How standardized do you think this will become in the industry? And what steps are you taking to enable that?

And does the second OEM now have essentially the same qualification path as the lead customer? And when do you expect POs from the first customer as well as the second customer? And I have a follow-up.

Yes. So Ruplu good question. Yes, I think what has happened is over the -- what we've done over the last couple of quarters, we've really been able to convince the customers that when you move from graphite anodes to 100% silicon anodes, some of the legacy tests are not very representative of how the battery will actually perform in real life, which is, I think, a huge step forward that we've been able to accomplish.

And as I mentioned, in February, we talked about this 0.2C cycle life test where we're internally seeing that we should be able to go past 1,000 cycles. Now the customer has confirmed that on their own test. So we are very happy about that.

And the one test that's left is really the accelerated cycle life test where if you just do at a normal cycle life, 0.2C, it just takes a long time. So people really need an accelerated test. We've now worked with the customers to come up with a hybrid protocol, which is some combination of the different rates of discharge. And that's what the customers are running -- my lead customer is running now. There's 2 or 3 different protocols that we work with them on. And our expectation is one of them will meet the requirements that they have in the fourth quarter.

Then we expect to get to a small build of -- they'll put the battery inside their phone to see how it performs. And then we start getting into volume production in '27 and so on. We do continue to talk to our other customers, too, and then we talk to them about -- we have a good engineering relationship where we talk about these protocols. I do expect in time that the market will adapt and change to these kind of protocols because silicon behaves differently than graphite in accelerated tests.

Okay. As a follow-up, can I ask, you've made many manufacturing improvements in Fab2. What is the manufacturing capacity now as it stands today of HVM-1 as well as the agility line? Can you give us a sense for like how much max units of smartphones and eyewear that each of these lines can support?

Yes. I mean, look, like I said, when we first said what the lines were, we have continued to keep that. 1,350 UPH was what the nameplate capacity of the line was. We haven't really staffed to all of that because we are managing that through the qualification time line with the customers so that when the demand is there, we are there. And again, it's not really a question of how much capacity we have. It's more a question of pacing the line with the right number of people and working on the yields and working on the ramp in line with as the customer qualifications are going. So that's kind of where we are on that.

Your next question will come from Mark Shooter with William Blair.

You can hear me, right?

Yes, sir.

Awesome. Raj, congrats on passing the 1,000 cycles. That's a big accomplishment. I do think that we thought that this would be the last milestone stage gate, though. So can you walk us through what the last test, what are we trying to prove there? I mean I know it's a hybrid approach, but is there something that your lead smartphone customer saw that required a little bit more digging in? Any color there would be helpful.

The last test basically is what I call accelerated test, which basically means that they would like to discharge at a faster rate, as I mentioned, but not just all the way at the high rate, but some combination of a faster rate and some combination of a slower rate, which is kind of more representative of what a phone might actually do in the real world. And we are working with them on the protocol that actually will get that done, and they have a number that we need to meet to get to that. And that's what we are working on.

The next stage after that is to actually do the test inside a phone, right? These are bench tests on the battery on the table. So that's the next step to it. Like I said, the main gating item right now is an accelerated cycle life test so they can complete the test in time. And we have multiple protocols that we are working jointly with the customer, and they're all underway. And by fourth quarter, we expect to see some good results.

And Mark, at the risk of being repetitive again, it's like go back to the February print, and we showed in the presentation and talked about how we passed the 0.2C test internally. We're waiting on the customer to run that test themselves. And that's what we've put in the headline here today, and we're very proud of that we've got that independent verification from the customer.

What we also talked about in the February print and follow-up in the May print was the 0.7C test, and that's the traditional graphite test that we need to define a proxy or a substitute. And now we've got the framework in place we mentioned last quarter. And now we have cells running under a handful of separate variant protocols, and we expect one or more of those to pass by the end of the year.

Okay. Got it. Switching over to the drone opportunity, which is increasing here with a $100 million pipeline. It's a big number, and it's an exciting business. The -- what I'm interested in is, can you walk us through maybe some of the time frame of what that engagement looks like with the customer.

So you have $5 million in wins already. But can you walk us through how long it may take to move somebody from a pipeline opportunity to down subsequent steps? Is it 9 to 18 months? And when do you see some of a decent conversion from that pipeline opportunity into backlog?

Yes. Like as I mentioned, right, I think we have a pipeline that has grown significantly. The $5 million is only just design win, awarded one. The better number is like there's $40 million already in active testing and design win for the customers to our cells right now.

Defense qualification cycles are shorter than smartphones because just of the need -- of what they need to get to production faster. And the revenue and scale aligns with our Korea capacity coming online in mid-2027. So we start to expect to see ramp of this -- some of this pipeline in the mid-'27. And again, this capital expansion is very capital efficient because it's on the land and buildings we already own.

Yes. And if I could comment as well because I said to those same pipeline reviews, it's -- there's some splits within that group as well, right? So the drone companies themselves, it's -- they're all trying to move really fast, in my opinion, in the sort of 6 to 9 months and we're sampling those. And quite frankly, within our internal teams and cell teams, everyone is fighting over samples in terms of how we prioritize.

And then there's a separate split of the defense primes. And as we start to focus on supporting those type of activities, those tend to be a little bit longer runway. So 18 months is, I think it's not an unfair number to say what we think the average time is to get to production with some of those. But those represent some enormous opportunities. And so in both of these areas, it's really about us putting capacity in place and the equipment that we've ordered is in flight right now, pardon the pun, is just hopefully the beginning.

Your next question will come from Derek Soderberg with Cantor Fitzgerald.

Just a clarifying question here first, Raj, you were talking about the testing earlier. Just wanted to confirm the second smartphone OEM is accepting the 0.2C testing standard? Or are they -- I think you had said there are sort of a few different options, but just wanted to confirm that second smartphone customer is sort of accepting the 0.2C.

Yes. I mean, look, we are focused on the first one first. And when that one gets to the right stage, we will sample the second one. But we have talked to all of them about silicon being different, and they all understand that. And I think some of them have launched some amount of silicon batteries already. So they do understand that they behave differently. So I think, my expectation is the whole market will move towards that in time.

And it's fair to say, each one should be easier and easier. We are not planning [ first to fail, ] yes.

Because once you do first time right, yes.

Got it. That's helpful. And then just on the Zone 1 yields improved quite a bit since Q1. I was wondering if that was mostly the dicing configuration. And then just kind of a high-level question on yield. Where do you guys feel like you need to get before you can really ramp up production? Maybe a yield number that gives you the confidence to invest in additional capacity just with the assumption that demand is not the issue.

Maybe I'll take a first stab at that one. I think, Raj has talked for several quarters, and I've emphasized as well in terms of we're making steady progress, and we're doing things in kind of an orderly fashion in order to kind of meet our customer commitments. And so, I think there's just been -- it has been time to put a lot of steady progress and a lot of focus on just kind of grinding out disciplined yield wins. And so there's a lot of tactical things that go in to represent and be reflected in that 4 percentage point increase.

So there's mechanical changes, there's process changes, there's a lot of different things. And the team in Malaysia has done just a fantastic job grinding out those wins. And Michael, who has joined as COO, we think is a great addition and adds to the team, and he's over there in Malaysia this week and reporting good things. And I think he's going to just help with the momentum of progress.

In terms of yield -- to be able to start a ramp, well, I mean, we're starting the commercial ramp with Smartware. So we feel good about it. And we feel good that we're on a glide path, and we've got a path to the gross margins that we want to need. And I don't think the margins that we would target is as baseline margins in order to start a real high-volume ramp is going to be any different than any other typical manufacturing concern.

And it's just continuous improvement. Yes.

Fewer words, yes, that's better.

Your next question will come from Bill Peterson with JPMorgan.

Maybe picking up on that last topic. So you have the new COO, Michael. Do you expect that he'd be probably more focused on Malaysia, improving the areas that you just spoke to or Korea or somewhere in the supply chain? Just kind of any sort of tangible area where you think that you can get the most continuous improvement using your words.

Yes. I mean we don't -- I think we mentioned last time with KH, who came to us with a tremendous experience from our Routejade acquisition is now responsible for the manufacturing of both the factories. So Michael will be responsible for both the factories in addition to advanced manufacturing machines that we need to build, in addition to supply chain, getting the right materials in place. So the entire operational side will be under him.

And I said in the prepared remarks, our Malaysia factory is benefiting quite a bit from our learning in Korea because we've done that battery manufacturing know-how. And with KH being there, the cross-pollination is happening tremendously. And also, our Korea factory is benefiting tremendously from our silicon knowledge and how that's actually helping us make a very competitive drone cell.

And our India team is actually helping both of those. We have tremendous R&D team in India. So it's kind of a holistic set of teams that are all working together, and we don't separate that much as Malaysia and Korea as much as battery know-how across both those.

The next one, I guess, maybe probably for Ryan, but the gross margin took a step down in the second quarter. You called mix primarily sold from South Korea. Can you provide some more color on that? And I guess it sounds like you didn't really have any impact yet from the small volumes of the eyewear, but it sounds like based on your expectations that might be a bigger impact. So how should we think about gross margin trajectory based off the prior comments around eyewear and maybe other mix ramifications from South Korea?

Yes, good question. I mean, look, first, I'd caution against reading 1 quarter as a trend. I think more appropriately, if you look at the first half, on a first half basis, non-GAAP gross margin was 23%, I think, versus 21% in the prior year. So year-to-date, actually up 2 points. Q2 specifically, again, reflects the product mix and principally in the Korea base business, which can be lumpy. The -- some SKUs carry better margins than others. It's just the case.

Looking forward, we don't -- obviously, we don't guide gross margins. But the shape to understand is that the base business is there. Last year, if I recall, '25, Q4 ended up being a stronger margin quarter than Q3. But there's no doubt, smart eyewear, as we ramp, it won't be big numbers, but it will drag -- it will be a drag on margins as we move into that ramp as the overhead gets moved into gross margins. Again, from an operating income, from a cash flow basis, it's largely geography moving. And really, again, as we scale to '27 and beyond, we expect that to rationalize as we scale.

Your next question will come from Ananda Baruah with Loop Capital.

I apologize if this has been asked already. Raj, memory availability, does that have any impact just because of the prolonged tightness on any of the -- like the SKU qualifications on smartphone or PCs that you guys are targeting? And then I have a quick follow-up.

Not much for us yet. We're not in high volume. So we are really in a qualification stage. So I think we don't see too much impact right now. Yes, the customers are worried about it, but not impacting us.

And is there a -- there is a component of what's going on where low-end phones, low-end SKUs are unable, they are just exiting the market to some degree. Would that impact you at all? Where exactly would you consider yourselves to be positioned inside of sort of that heat map, that SKU heat map?

I mean, really, we're in technology qualification stage and people really want to use us in the leadership products because that's where they see most advantage of our technology and differentiation, and that's where we are being qualified. But I do expect that to waterfall down. And like I said, at this point, the SKU mix is not impacting us that much because we are working in the qualification stage. That will come in time, but not right now.

Cool. And if you -- sort of just -- if you -- and this is for our benefit, but if you thought about what your revenue mix is 3 years out, 5 years out like that, different product segments, how -- what do you think is a useful way for us to envision what the rev contribution is to the company? Maybe like sort of anecdotal percentage, percent -- percent this, percent that, not necessarily a rev outlook.

And maybe I'll try and approach. Yes, of course, we can't necessarily quote it -- we can't quote a number or specific. I will say, it's going to be, I think, a pretty good horse race. A year ago, if I think you asked that question, we were talking principally about smartphone would be the obvious answer. I think the way that the drone market and the defense market has developed and the progress that we've made with product development, customer qualifications and building the team, that has an opportunity to be a really big business really fast.

Yes. And again, smart eyewear could take off and become huge, and that could be good, too. So it's hard to call the mix, but I think all 3 markets for us are attractive and where our technology provides clear benefit to our customers. So that's probably the best way I'll say it. It's exciting times because everybody wants better batteries.

[Operator Instructions] Your next question will come from Jeff Osborne with TD Cowen.

Just a quick one, Ryan. Could you update us on where annual production capacity is at the South Korea facility now? And then Raj mentioned that you would be expanding, and that would be up and running, I think, by the middle of '27. So I was just curious, where is it now annual revenue capacity? Where are you headed? And then how much will it cost?

Okay. I think I got all the subpart. Okay. Thanks for the question. In terms of capacity there, I mean, we're not operating at full capacity. So there's some headroom there. There is some complexity a layer down because there's different sets of equipment. So each different equipment line has different -- some are at capacity, some are not. That's the reality of the current building.

In terms of the capacity for the drone business, we have minimal right now. We have placed orders for new equipment that gets us what we think is significant material capacity coming on in the summer. And that equipment is going to be tailored and customized to -- standard equipment, but configured for our specific product SKUs.

I guess, so are you preparing for this to be like a $100 million business 18 months from now? Is there any flavor or sense of...

Yes, I can answer. The capacity of that equipment, I guess I can quote that number is roughly 1 million units. And it's all embedded in the CapEx forecast that we're starting to make payments on. And you see, I think it's $8 million to $12 million that we guided. So it's -- as Raj cited, capital efficient. We have additional buildings and land there in South Korea, so we can add incremental capacity beyond that. So hopefully, this is just the first inning of that baseball game.

Yes. And our goal is to make sure that as Samira and her team converts the pipeline into opportunities into wins, we don't get capacity limited, right? So -- and we are staging it in that way. We are building the factory in that way so that incrementally, we can add capacity quickly. But up to 1 million units a year, as Ryan mentioned, we are already on track. So we can keep driving more on that as we see the design wins come in. We have the space and the building, so it's really not a problem.

There are no further questions at this time. With that, I'd like to turn the call over to Dr. Raj Talluri for closing remarks.

Yes. Thank you all. Really great quarter. We're happy with all the progress we've made and look forward to seeing you next quarter.

Thank you for standing by, and welcome to the Enovix Corporation First Quarter 2026 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, Robert Lahey, Head of Investor Relations. Please go ahead, sir.

Thank you. Hello, everyone. Welcome to Enovix Corporation's First Quarter 2026 Financial Results Conference Call. With me today are President and Chief Executive Officer, Dr. Raj Talluri; and Chief Financial Officer, Ryan Benton. Raj and Ryan will provide remarks followed by Q&A.

Before we begin, please note that today's conference call contains forward-looking statements that are subject to risks and uncertainties. These statements are based on current expectations and may differ materially from actual future results due to various factors. For a discussion of these risks, please refer to the disclosures in today's press release and our filings with the Securities and Exchange Commission. You can also find these materials on our website at ir.enovix.com.

All statements made on this call are as of today, May 13, 2026, and we undertake no obligation to update them, except as required by law. Additionally, during the call, we may reference non-GAAP financial measures. You can find a reconciliation of these to the most directly comparable GAAP measures in the materials posted on our Investor Relations website.

With that, I'll turn the call over to Raj.

Good afternoon, everyone, and thank you for joining us. This quarter marked another meaningful step in Enovix's transition towards commercialization and scale. We advanced across the areas we believe are most important for long-term value creation. Customer engagement, commercial deployment of our silicon-anode batteries and manufacturing readiness.

I'm very excited to share that in the smart eyewear market, we commenced commercial production of our A1 battery for our lead customer's reference platform and have multiple customers in the process of launching smart eyewear products. Initial shipments are underway with production expected to ramp through the second half of the year. We believe this validates our ability to manufacture our 100% silicon-anode architecture at commercial scale.

On smartphones, we aligned with Honor on an updated qualification framework designed specifically for silicon-anode batteries. This framework, which includes revised specifications and testing protocols, better reflects real-world usage conditions. We are pleased to have also aligned with our second smartphone OEM on the view that they too will need to adapt a similar testing framework in order to get their products to market on a competitive timeline. Beyond these customer engagements, we're in active dialogue with several additional leading OEMs regarding silicon-anode battery qualification standards, and we are encouraged by the constructive cadence of our discussions with these OEMs as we work towards future qualifications and commercialization programs.

Importantly, we believe we are doing the hard work now that will enable our future OEMs to roll out their silicon-anode solutions more rapidly. The principal structural mismatch and qualification has now been addressed to align with silicon-anode performance while maintaining and in some respects, increasing qualification rigor. Cycle life testing at our lead customer for batteries that we shipped at the beginning of the year is progressing under the updated protocols with the results approaching required thresholds. The deep partnership and technical engagement we are seeing with multiple customers in the smartphone market reinforces our belief in the industry's interest in high-performance silicon-anode battery solutions.

We're encouraged to see growing demand across our drone, defense and industrial applications, securing new customer design wins during Q1 2026 in each of these markets with deployments expected in 2027. Our global pipeline for products manufactured in Korea now exceeds $130 million, with majority driven by rapidly expanding drone applications where demand for high-performance battery solutions continues to outpace the available supply. This creates an opportunity for an additional scaled high-performance supplier. We believe Enovix is positioned to emerge that differentiated supplier in this rapidly expanding market.

We continue to improve manufacturing execution at Fab2. Yields in most production zones are now nearing or exceeding 90%. Zone 1 dicing, a key throughput driver, is delivering step level yields of approximately 80%, demonstrating continued progress with our laser-based equipment. We recently appointed Steve Bakos as Senior Vice President of Worldwide Sales to support Samira Naraghi, our Chief Business Officer. Steve brings more than 35 years of global semiconductor sales leadership from companies such as Infineon, where he served as a Vice President of Corporate Account Sales for large global accounts, including Apple.

This quarter, revenue was $7.6 million, driven by Korean military contractors above the high end of our guidance range and up 49% year-over-year. Non-GAAP gross margin was 26.3%.

Now I'll walk through each of these areas in more detail, starting with manufacturing. On that front, I want to give you an update on our Zone 1 dicing, which is our current throughput bottleneck. Since I joined to improve the throughput of Zone 1, we have been working on a faster, cheaper way to dice our coated rolls. We have been making great progress. Last week, I received a video from our equipment vendor showing this in action. Rather than trying to describe it with another chart, let me just show you the actual process.

What you saw was our mechanical dicing system processing silicon-anode strips directly from coated roles. We're implementing a hybrid dicing configuration strategy that combines both laser and mechanical dicing approaches. I continue to be encouraged by the substantial progress our global operations and advanced manufacturing equipment teams are making in this novel area for silicon-anode batteries.

As we mentioned on the last call, legacy smartphone qualification protocols were originally developed around the graphite-based batteries and relied on a 0.7C discharge requirement. That standard can artificially stress silicon-anode cells at discharge rates far above real-world smartphone usage, which typically remains well below 0.2C. The consequence was important. Silicon life testing under this framework systematically understated silicon-anode batteries longevity. We've aligned with Honor on a new silicon-anode specific qualification framework. The updated framework prioritizes a version of the 0.2C cycle test that commenced in Q1. This methodology better reflects real-world usage for silicon-anode batteries while enhancing the rigor and visibility into performance. We are seeing broader industry alignment around silicon-anode specific qualification standards.

Our second smartphone OEM has joined our lead customer in removing the 0.7C test from their list of hard requirements as we're now progressing towards an updated framework similar to our lead customer. Discussions with several additional top OEMs are ongoing. We expect broad adoption of similar silicon-anode specific qualification approaches over time.

With this framework now established, the plan with Honor is a targeted system-level deployment in the second half of the year to confirm infield performance ahead of the broader commercial launch in 2027. Importantly, we also recently received the battery form factor for their next-generation device to support readiness for the next major product launch.

Our commercial strategy centers on 2 complementary technology platforms that address large and, in some cases, rapidly expanding market opportunities. AI, short for artificial intelligence class, is our flagship 100% silicon-anode platform, is targeted at smartphones and smart eyewear markets where volumetric energy density is a key requirement. Smartphones represent the largest battery market opportunity for Enovix. However, smart eyewear is emerging as one of the fastest-growing new device categories. We think that the smart eyewear battery market opportunity could exceed $1 billion by the end of the decade.

More broadly, the AI platform is applicable to virtually any space constraint device requiring high energy density and long cycle life, including future applications in wearables, computing, industrial handhelds, EVs and humanoid robotics. Previously, we acquired an established business producing graphite-anode-based products. These products are in production today, generating revenue in defense, drone and industrial markets through our Korea facility. We've been able to leverage these capabilities in combination with our silicon-anode technology know-how to create high-performance MX silicon-enhanced platform. Our initial target market for MX represents more than $4 billion in opportunity, including approximately $2.4 billion in drones and $1.8 billion in defense technologies beyond drones. These applications prioritize performance and supply chain security with a greater focus on gravimetric energy density.

Over the longer term, we believe the MX platform is also well positioned for adjacent markets, including robotics, eVTOL, healthcare devices, transportation, agriculture and broader industrial applications. The first product Enovix is launching on this platform is MX1, a ruggedized drone cell design requiring rapid discharge and high gravimetric energy density.

I want to highlight something important here. These are not separate bets. They are mutually reinforcing platforms, sharing technology, supply chain capabilities and commercial infrastructure. We're increasingly seeing benefits flow in both directions with the AI platform leveraging Korea manufacturing strength and the MX platform benefiting from our silicon expertise and global commercial reach.

Alongside qualification progress, our R&D efforts continue to advance the platform. This quarter, we produced the first engineering samples of AI2 for smart eyewear, delivering greater than 20% higher volumetric energy density compared to AI1. This represents a meaningful architectural-driven improvement, potentially enabling product categories that require significantly more power within highly constrained form factors. We've achieved this improvement through 2 primary drivers, reducing inactive material to improve packaging efficiency and increasing the cathode voltage. Together, these advances increase energy density within the same footprint and further demonstrate the advantages of our 100% active silicon-anode architecture. We believe this represents the first of many future advancements unlocking the full energy potential of 100% active silicon-anode architecture on the future AI product road map.

Display equipped smart eyewear is expected to become a rapidly growing battery market. And we believe increasing power requirements create a strong fit for our technology. Smart eyewear also represents an attractive initial commercialization opportunity for our silicon-anode platform. Qualification cycles are generally shorter, more flexible and durability requirements are lower, and the market is in the early adoption stage. Customer sampling of AI2 is planned for later this quarter. We have already received initial sampling orders and engagement commitments from several leading smart eyewear companies.

The 20% energy density improvement achieved with AI2 is important not only for smart eyewear, but also because similar gains for future smartphone batteries could materially extend our technology advantage. The current AI1 smartphone battery delivers 935 watt-hours per liter and has been independently validated against graphite and [ silicon-anode ] alternatives. We believe this positions Enovix with a meaningful competitive advantage in high energy density mobile applications. Competing approaches remain largely focused on conventional graphite-based designs with incremental silicon editions. These architectures continue to face swelling constraints that limit long-term performance and energy density improvements.

In contrast, our architecture is designed at 100% active silicon-anodes, which we believe provides a substantially higher long-term scaling opportunity.

Now let's talk about our second platform, MX. This week, at the Michigan Defence Expo, we formally launched MX1-B01, a drone battery cell, delivering energy density of 360-watt hours per kilogram positioning us competitively within the high-performance drone battery market. We achieved this performance through targeted silicon content enhancements, leveraging an already proven manufacturing platform. MX1 is designed for applications requiring excellent flight time, high discharge capability for power-intensive missions and a secure supply chain. We believe the product compares favorably with similar leading high-density solutions currently available in the market and offers a material cycle life advantage. We are manufacturing these cells from our South Korea factory, which has supported defense customers for years and our commercial focus is on drone manufacturers globally as well as their packaging partners.

Following the Michigan Defence Expo, we plan to showcase MX1 at 11 additional conferences around the U.S. and Europe over the next 2 quarters as we continue building customer engagements and commercial pipeline activity.

This slide shows how we see the MX platform evolving beyond the initial MX1 launch. Demand for high-performance drone battery supply continues to exceed currently available Western capacity, which we believe creates a meaningful opportunity for Enovix. These applications prioritize performance, reliability and supply chain security, supporting differentiated positioning relative to commoditized consumer battery markets. While drones are key near-term focus, we've also established product offerings for subsea, munitions and industrial applications expanding MX platform across multiple high-performance end markets.

Our Korea and Malaysia manufacturing footprint directly addresses defense supply chain requirements backed by years of production history supporting major contractors and deployed programs. A key structural advantage for Enovix is vertical integration because we own our manufacturing operations, we're not sharing economics with third-party contract manufacturers, which we believe supports both competitive pricing and attractive long-term unit economics as volume scales.

As product competitiveness becomes increasingly established, the gating factor becomes commercial conversion, which is why we recently appointed Steve Bakos as the Senior Vice President of Worldwide Sales. He brings more than 35 years of global semiconductor and industrial sales leadership experience and will help build the commercial infrastructure required to support growth. Looking ahead, MX2 is targeted for 2027 with the goal of reaching 400-watt hours per kilogram. Over time, we intend for MX to evolve a broader platform strategy, spanning multiple product formats and defense and industrial end markets.

Now I'll turn it over to Ryan to walk through our financial results. Ryan?

Thanks, Raj. Our first quarter results reflect disciplined financial execution alongside continued commercialization investment. First quarter revenue was $7.6 million, above the high end of our guidance range and up 49% year-over-year. These are largely batteries deployed in active programs with repeat demand. Non-GAAP gross margin was 26.3%, our sixth consecutive quarter of positive gross profit on both a GAAP and non-GAAP basis. Non-GAAP operating expenses were $30.8 million, reflecting continued investment in customer qualification completion, research and product development and smart eyewear production readiness.

Non-GAAP loss from operations was $28.8 million, better than the guidance range of $29 million to $32 million. Non-GAAP net loss per share was $0.14 at the better end of the guidance range despite higher interest expense from the 2030 convertible notes issued last year in Q3. Adjusted EBITDA was negative $20.3 million, roughly flat year-over-year.

We ended the quarter with approximately $582.7 million in cash, cash equivalents, restricted cash and marketable securities. We believe this provides substantial liquidity to execute on our operating plan to support commercial scale up and to pursue strategic opportunities from a position of strength. Free cash flow was an outflow of $36.3 million, increased from the same period a year ago, primarily driven by timing-related items, including the semiannual interest payment on the 2030 convertible notes and working capital movements primarily higher inventory levels in Korea to support planned shipments. Capital expenditure payments were $3.2 million in Q1, below guidance due to the timing delay of certain payments, the majority of which we expect to be paid in Q2.

Turning to Q2 2026 guidance. Revenue is expected in the range of $8 million to $9 million, reflecting continued growth in defense and industrial shipments and initial smart eyewear revenue as deliveries to our lead customer begin. Non-GAAP loss from operations is expected between $29 million and $32 million. Non-GAAP net loss per share between $0.13 and $0.17, and capital expenditure payments are projected in the range of $9 million to $13 million, which includes the aforementioned deferred payments as well as initial payments for the investment to support capacity expansion in Korea.

Last quarter, we approved a share repurchase authorization to provide additional capital allocation flexibility. We have not made any purchases under that program. Our capital deployment priorities remain unchanged: qualification, completion, scaling smart eyewear and defense production capabilities and selectively pursuing strategic opportunities with a high bar on strategic fit and return.

And with that, I think we're ready to take questions. Operator?

[Operator Instructions] 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, "previously, management has discussed multiple pathways to achieve final smartphone qualification targets. Could you elaborate on which of these pathways currently appears most promising?"

Yes. Thank you for the question, and thank you all for listening. Of the pathways we discussed, as I mentioned in the prepared remarks, we have now aligned with Honor at a combination of different pathways that we could use. The 0.7C legacy test requirement, that's been mainly for -- based on graphite batteries, we've aligned with our customers that is not -- must have a requirement, and it's been removed as a gating item. We're now working on a slightly different 0.2C test, which more than -- better reflects the real-world usage of the smartphone, and that's been prioritized now. And not just with Honor, but many of our other lead customers also agreed to the same thing.

In general, I feel like the smartphone market, now people are realizing that as silicon batteries become more and more popular, we should really -- they should really change the requirements that are in the market that have been used mostly for graphite. So it's a really nice, really great result. I'm really pleased with my team being able to convince them. Now the 0.2C test is more than halfway done at our customer, and it's continuing to go and we're tracking it.

The second question is for your AI2 platform. When will the samples be submitted to customers so that testing can begin?

Yes. As I mentioned in the remarks, we have engineering samples now inside, and they look really good in terms of the 20% energy density increase that from AI1, great achievement by the R&D team, harnessing the full potential of silicon. And these will continue to get better over time. But these samples, we expect to sample this quarter to our customers and quite a few people have actually expressed interest in that and we got to have a few sample [ batches out now ].

[Operator Instructions] Our first question will come from Mark Shooter with William Blair.

My first question is just focusing in on Honor a bit. I saw in the press release that you have some field testing looking at second half, right, is when you're targeting. So I'm wondering if you could give us an updated understanding of what unit volumes may be for that field testing with Honor. And if successful, do you have a better view on what a ramp would look like in '27?

Yes. So, again, as I mentioned, now we have a test methodology that aligned with Honor, so we're in the middle of doing that. And the next big step is to actually put the battery inside an existing phone for which we made this custom size cell. It's hard to predict the number of units, and they'll be small because it will be initial test just to make sure that everything is smooth and limited launch maybe. But the real volume will be in '27. But more importantly, we got the size for that particular battery that's going to be launched in '27, and we're now working on how to make that battery after the field testing is complete.

Okay. Great. Switching gears into drones, which is a very interesting opportunity. And congrats on the silicon carbon composite and that mixed graphite cell. A 360-watt hours per kilogram, that's going to put you well in the running against the current peer set. So I'm wondering if you could speak to maybe some of the customers that you're engaged with in sampling and say you win all that business today everyone you're engaged with. Do you have an idea of what those qual times look like and your current unit volume and revenue capacity?

Yes. Firstly, thank you for that comment on the drone cell. We are also super proud of the engineering team that came up with it in a very short order, particularly because we have a well-established manufacturing facility that beyond we were able to quickly make that. The product actually is extremely competitive with what's in the market today and it's made totally within our factories. It's not contract manufactured. Actually, I have the phone battery here with me, we have a bunch on these cells now. So we -- there is a lot of interest. I just got a call from our sales team who's at the Detroit Drone Show (sic) [ DroneArt Show ] right now about the tremendous interest they're seeing. Because this is also an NDAA-compliant cell, which is actually a big deal for many of our customers.

The go-to-market of this works this way. Typically, there are people who take this and put them in packs and put the BMS around it, and the system around it. And that goes into multiple drone makers. So it's hard to call the volumes right now, but the market is so fast and growing really fast that we think that the cycle times, the qualification time will be shorter than things like smartphones because there's such a demand. And also a cycle life doesn't have to be that long in these. Our cell goes to 300 cycles, but even shorter cycles are okay in some of these markets.

And maybe I'll chime in. Mark, you asked about volumes. Again, we talked about in the CapEx forecast in prepared remarks, we're already spending dollars to add equipment to one of the existing buildings in the non-sim facility. And one of the great strength advantages that we have sitting on our balance sheet is we have multiple empty buildings in that facility as well. So we have numerous stages of additional expansion capacity there, and we're just going to do that in a methodical way as demand presents itself.

Your next question will come from Colin Rusch with Oppenheimer.

Could you talk a little bit about the mix of silicon material that you have in the new drone batteries? And the pathway from the 360 watt-hour per kilogram to 400 watt-hour per kilogram, how much of that is being driven by increased thickness or a different form factor or increased concentration of silicon in the anode?

Yes. Great question, Colin. So when we did this one, the way we did it was to -- there's an existing requirement for a cell that's in the market today that many of the customers wanted us to provide something that is with the full NDAA-compliant made within our factories. So we made that one and we quickly got it to that performance. Actually, it performs really well. The cycle life is really good and the capacity holds. We have about 60% SIC in that cell, but we now believe that we can get that to a much higher percentage because in this market, some amount of swelling is okay because it's inside a drone and you could put pressure and put it in there. It's not a space constraint situation like smartphone.

And also, the discharge rate and the pulse discharge and the number of cycles are variables we can keep tuning. We mentioned 400-watt hours per liter is something that we could produce. I believe we can go much higher than that by just making the right trade-offs between cycle life and discharge rate and the amount of swelling that allow.

So I think the good news is we've been working on silicon for a long time. So we know exactly what electrolytes work well with silicon. We're working with graphite for a long time in Nonsan. We have that know-how and we have a factory that's been supplying for defense for a long time. So our quality of the products that we actually supply to defense is very, very high bar, and that factory is actually qualified for that. So that's why I think that you will see a pretty competitive road map from us for this market very quickly.

Great. And then looking at the laser cutting, I just want to understand kind of the cadence of learning cycle on yield improvement and how we should think about kind of the engineering work that you're doing and how quickly you can implement that to start getting a little bit better output on the overall facility?

Yes. So as I mentioned, from last quarter to this quarter, we've improved our yield across multiple zones, well into the 90% range now in most of the zones. The laser light is kind of in the 80% range, but that's improved quite a bit from last time. But as you guys saw in the video, we've been working on this for a while. And today, I thought it was a good time to show you a combination of laser and mechanical dicing that actually cuts much, much, much faster and much cleaner. When you laser dice, there are also some challenges that we've been working on for a while, which is how to get to the yield and the throughput and so on. It's an expensive way to do things. So we've always -- right when I started, we've been working on a different way to actually do this and you saw the mechanical dice now. So we have enough lasers, we have enough throughput to meet the demand for this year. And we will get the mechanical dicer, our plan is to get it online this year. So for the next year's demand, we can use a mechanical dicer with some combination of laser finishing it up. So really exciting results. So I hope you guys saw that video -- the throughput that we can produce with that.

Your next question will come from Jeff Osborne with TD Cowen.

Maybe just a quick two questions, but one quick follow-up on Colin's. Can you get to 90% yields without that machinery intact? Or do you need to add the lasers to get there? And that's more of like a 2027 event getting to 90%?

Maybe I'll take...

Yes, please, Ryan.

Yes, I think we can -- we're capable of getting to 90% yield. But again, it goes hand in hand with throughput. I mean, again, you saw the video, really the mechanical dicer is just able to operate so much faster. And so ultimately all this -- I'm the finance guy, ultimately, it's about cost. We just think it's the most economical way eventually in some of the sub-process steps to operate.

Okay. And cost of the machines, right? These are much -- it's a less expensive way to get throughput.

Yes. Perfect. And my two questions is, one, Ryan, I was just wondering if you can update us on the M&A pipeline. I think you've been out there searching for a couple of quarters now. And then just, Raj, a clarification, you mentioned providing packs to Honor to put in a phone, small quantities in the second half of the year, but then you mentioned something about getting a second design. It was unclear. Is there a second SKU that they've given you? Or is the SKU that they gave you what they intended to produce in '27? I'm just trying to get a sense of your relationship is deepening with them, and they're giving you a glimpse of what they intend to commercialize after the first product launch?

It's exactly the latter. So we actually have a SKU that will launch in '27. So which is actually a fairly large deal and shows the relationships we have with them.

And in terms of the packs to Honor or the quantities, any comments on that?

Yes, it will be small volume. Again, it will be just to test and make sure that the system level stuff works okay, and we get a small initial launch. And I think that's again, that's fine with us just to make sure everything is good before we get into high volume.

Does that like thousands, friends and stuff?

That's probably what -- that's probably what you should think of.

And then on the first question in terms of M&A pipeline. So I'm really pleased with the pipeline that we have multiple opportunities that we're pursuing. Again, as we said and repeated time and time again, we're going to be disciplined. So it has to meet a strategic fit. And we're going to be disciplined on price. So it's fair to say that we've looked at quite a few opportunities that we just didn't like the price tag, and we've moved on from that we're -- I think we're excited about some of the opportunities we're pursuing. But again, there are -- we're not going to waver. We think we're going to be disciplined stewards of the capital and make sure it makes sense, and it's something that Raj really sees the strategic fit and benefit. And it's something that I can be here on an earnings call and be proud of the price we paid for it.

Your next question will come from Ruplu Bhattacharya with Bank of America.

Raj, I wanted to ask the first question on smart eyewear batteries. I think the press release says that you expect 50,000 units in 2026. How should we think that, that scales as we head into next year? And how should we think about the revenue progression from smart eyewear over the next few years?

Yes. So the 50,000 is this year. Firstly, I wanted to say that with the way where the yields are and the throughput is and the way it's working, we're not able to manufacture the cell in our lines and the customer -- deliver to the customer, they're testing them, it looks good. So firstly, that's, I think, a great result.

We -- as I mentioned, it is a huge market growing rapidly. It should be in the millions next year. It's hard to tell exactly how much. We have sample to many different customers now because what we have is a battery that really makes the product because energy density right now, as you know, many glasses out there, they don't last the whole day. So this 1 actually continues to improve on that. And now that's why we decided to launch the next product using our AI2 in that space first, because the market was really asking for even more because they're -- it is very difficult to have the product last holiday without that. So we do think that, that will -- the first product will launch this year. The next product, AI2, we're going to sample this summer, and that will go into production next year. So we expect it to be in the millions next year.

Okay. For a follow-up, can I ask Ryan, as you ramp the smartphones later this year and next year, the smartphone batteries, how does that impact gross margin? I think some OpEx might move into COGS. So can you just help us understand how we should think about gross margin progression as smartphones become a bigger part of the mix?

Yes, certainly. So certainly, as we ramp the smart eyewear and the smartphones, you're going to see some change. And you will see some of the costs right now that we have an operating expense will move up above the line into the cost of goods sold line. But really, whenever you think about our cost structure, the majority of our cost of sales is materials. So it's really about continuing to drive the bill materials cost down, and those will be materials that we purchase for those orders as we prepare to ship them. So that's the vast majority of our COGS. So when you talk about direct labor, variable overhead and even fixed overhead to some extent, although we have some material cost as it relates to the cost of the [ factory overhead ], as we get to a decent amount of volume, it ends up being a very small percentage of our costs.

Your next question will come from Derek Soderberg with Cantor Fitzgerald.

I was wondering if there's any way you can segment that $130 million Korea pipeline drones and defense opportunities, how much of that is sort of legacy Routejade and how much of that is drones?

Well, firstly, this is future-looking revenue, not -- right? So it's actually -- a lot of it is new designs that we are working with customers to get. And so in some sense, some of it is continuation of the defense business that Routejade had, but the majority of it is actually new stuff that we are winning and drones is like over 60% of that.

Got it. That's helpful. And then just curious on the NDAA-compliance piece. I was wondering how unique that is. I know there's a couple of others that have that, but not too many at this point. Might it be difficult for others to sort of achieve that over the next couple of years. And then within drones, what kind of drones are you getting interested in? There's a wide variety of sea drones, air drones, heavy and light. Where do you guys think you can build a nice business in drones?

Yes. So NDAA-compliance is actually not that easy to achieve because there's multiple elements to that under way, the cost of the things that are sourced, what percentage of them have to be from this FEOC and non-FEOC countries and then where the cells are actually manufactured. So for us, we manufacture them in Nonsan, South Korea, which is a non-FEOC country so which is very good there. And then most of the material we have in there, majority of it is actually not sourced there either from FEOC country either. So in that sense, it's a big advantage for us and that we own our factories and we have the material.

In terms of drones, we are seeing it in like training, public surveillance, inspection, public safety, multiple markets like that. What varies between these drones is kind of like a discharge rate, then it also depends upon how many cycles. The first product we made is, as I showed, 300 cycles, high discharge rates, this one that I talked about. But we have the technology and we have the know-how and we have the factory now to make different products optimized for slightly different -- lesser cycles, but more energy density and so on. So we will have a road map of products addressing various parts of the market as we start building out that road map. It's an opportunity that really grew very fast and came quickly.

And I'll touch and I apologize if you already mentioned it. But obviously, we've got a lot of -- a long history of subsea drones, and so that's out of Korea. And so that's something that I think will continue to be a strength for us as well.

Your next question will come from Alek Valero with Loop Capital.

Yes, just on smartphones, what impact is memory cost inflation having on your lower-end phone volumes?

We're not shipping much volume right now, right? So I think not so much impact right now. But we do see that the number of units shipped this year will probably be much lesser in terms of the total number of smartphone units shipped. Hopefully, that will normalize over the next couple of years, by the time we get into higher volume, maybe less -- hopefully it be less of an impact. But right now not too much impact.

Okay. And another clarification question. Did you say that the 0.7C testing requirement was removed or you're hoping to remove it? And if so, what impact does that have on your smartphone qualification time line?

Yes. It's -- our customers agreed to remove that as a must do. They have agreed to actually have a variation of the 0.2C and 0.1C, so on, which is actually how the phone is actually used as a gating requirement. So that does help. In terms of time lines, it will probably take a little bit longer because the 0.1C, 0.2C take longer to run, the 0.7C is a faster discharge. It's an accelerated test, but it hurts the battery. So they realized it's hurting the battery, it's not really helping. So in that sense, it may take a little bit longer to do 0.1C, 0.2C discharge because the time it takes to qualify is a little longer, at least on the first launches. But once we get to it, we understand what it is. We understand the trend, it should become normalized.

Your next question will come from Bill Peterson with JPMorgan.

For AI2, the 20% increase in energy density using this sort of the next-generation platform, can you speak about the trade-offs of this, including Cycle life that we can consider? I realize this at least in the first stages for eyewear, but assuming -- I'm assuming that AI1 will be your focus for your initial and second smartphone customer, but do you have a plan to sample AI2 for smartphones next year? Or is this longer dated? I'm basically trying to get a sense for what needs to be solved for the next gen to be used in smartphones. And basically, it's a question we've asked in the past, but how should we think about your road map for smartphones beyond AI1?

Yes, absolutely. I mean, look, I think the advantages we showed with a 20% increase on the smart glasses, that's why we showed a little bit of color on how we got to that. We increased the cathode voltage, we reduced the amount of inactive materials in there. We will put those -- we'll absolutely put those things into our smartphone battery, and you will see us improve it similarly. There's a few other things that we will -- we are continuing to improve. Packaging efficiency is 1 of them, how we actually package this, they are slightly different electrolyte. So we have a strong road map that will keep increasing energy density.

I mean the thing I've mentioned to you, Bill, is that, as I mentioned before, we use 100% silicon but we're not getting the full potential of the energy density increase 100% silicon could and should provide because we've been trying to solve these other problems, like cycle life, 0.7C, accelerated testing, fast charge and so on. But once we know work with customers to get those things understood and how exactly to do the qualification, we'll continue to improve our energy density. And the first [indiscernible] of our improvement in energy density we showed in the AI2, in the smart glass, but we'll quickly roll that into smartphones for next year.

I'm chime in as well here, the finance guy is happy to report that some of these key things on the road map not only improve the energy density but also reduce cost out of bill materials and reduce the cost to manufacture. So it's really kind of magic time when that happens.

And one other thing, Bill, maybe since you asked about the energy density road map, I know -- it's a question that's come up. Our batteries swell very little. So the existing batteries, even with the ones with silicon, still swell. So most of the smartphone OEMs actually leave a space in the phone for the -- allow the battery to swell at end of life. So we actually don't need that space. So when -- if we get that space also, that's what we're working with our customers, they allow us to use that. Our energy density even higher. So we will be -- once we get to qualification, we will be able to take advantage of that piece also.

All right. On the time line for shifting or the general trend to move towards mechanical dicing, are there any new challenges that we need to be mindful of? I'm wondering about particles or mechanical stress or other technical issues you need to overcome? Or maybe even said another way, why wasn't mechanical dicing the primary path for this relative to laser dicing?

Well, I mean, again, as you saw in the video, I wanted to show you guys a little bit of the machine. This is a complex machine that we've been working on building for a while. It's not like you just take a roller and put a role in it, right? So we have to build roll-to-roll roller, we have to ablate, we have to dice it, we have to find the right kind of binders and materials to actually make the right kind of coating and electrolyte so that as you said, when you do it mechanically, it still holds. So there's a lot of R&D, a lot of know-how has gone into it. We've been working on it since I joined. So in that sense, it's very excited, but it's a great technology that our teams have advanced. And -- they're still -- again, there's still issues to be solved, right? So we have to finish the dicing of it. We have to finish the anode, finish the cathode and put it in a full cell. So we're going to take this year to actually do that because we have enough lasers to meet all the demand we have for this year. And absolutely next year is when we'd like to roll it out.

Great. And if I could sneak one more in. On the part of that [ test report ], so 70 to 75 tests, 2 life cycle and 1 below freezing power tests. I think the power -- I'm not sure about the freezing power test, but is there any insight as to how your expectations? I think you feel more confident about the cycle life, but what about this freezing power test, something that I don't think I've heard much about in the past.

Yes. It's one of those corner use cases because what happens is silicon behaves differently than graphite at very low temperatures. So if you have a phone with a silicon battery at extremely cold when you start using the phone and you suddenly have a use case where you pull a lot of energy out it very quickly, there are some challenges to how much energy can battery can put out. So these are the kind of situations where we're working very closely with our customers to see at what use cases does it happen, how much does it pull in and which parts of the world and so on. So it's again, like the 0.7C test, silicon is different from graphite. So the tests you had before don't quite work exactly the same. But -- so that's one of those things that we are working with them. And I do believe that we will surely get past that also as we continue with this journey.

Your next question will come from Gus Richard with Northland Capital.

You mentioned the $130 million of pipeline for military projects. Is that an annual number? Or is that a lifetime opportunity and how much currently -- how much capacity in Korea do you have to support that?

Yes. So it's a total we keep in terms of what are the new designs that we are talking to customers and they're coming. So we can update that every quarter, it's not like annual, it's lifetime of those designs we have. They may take 1 year, they may take 2 years, time to launch. We have enough capacity right now, but we are adding capacity now. As Ryan mentioned, we are building out that factory more. Fortunately, in the last acquisition we've made, we got almost 300,000 square feet of factory with lots of buildings and power and dry rooms and so on. Very good acquisition we are fortunate to get from SolarEdge. We are now feeding it to keep increasing the capacity in line with the demand. Because the qualifications take a little time. So we're going to work on the capacity increase in line with that demand.

On a relative basis, of course, this is relatively standard equipment. So it's just blocking and tackling.

Got it. And then when you mentioned the eyewear customer, I believe you said it was a reference design. I was wondering if that's an OEM or chip companies reference design?

Yes. Well, again, because of confidentiality, I can't really exactly comment more than who that is. But 1 thing I'll say is, eyewear, maybe I add a little color to it. If you actually think of things like eyewear, there are things people wear on their personality. So it's a very style-based thing. So most of the eyewear things we buy, as you know, comes from fashion brands, right? So like you can think of Gucci and Prada and Ray-Ban and so on that you buy from Sunglass, so most of the tech companies are even chip companies and so on will actually make a reference platform. So the ultimate product is actually branded as a fashion product, right? So that's why it's very key to get a reference design with one of those leading technology providers so that then the channel to market can be through the fashion brands.

There are no further questions at this time. With that, I'd like to turn it over to Dr. Raj Talluri for closing remarks.

Yes. I mean, thank you, everyone, and thank you for your all the questions. Over the past year, much of the discussion has been on validation of the technology and its commercial readiness. We believe this quarter we provided additional evidence and the conversation can increasingly shift towards disciplined execution against commercialized milestones. The markets to watch over the coming quarters are clear, right? The continued progress and qualification, targeted system-level deployments, initial smartphone production ramp and conversion of this drone pipeline into revenue. Now we view these as tangible operational milestones, and we expect to demonstrate progress methodically over time. And thank you all for your support.

Thank you for standing by, and welcome to the Enovix Corporation Fourth Quarter 2025 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, Robert Lahey, Head of Investor Relations. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to the Enovix Corporation's Fourth Quarter and Full Year 2025 Financial Results Conference Call. With me today are President and Chief Executive Officer, Dr. Raj Talluri; and Chief Financial Officer, Ryan Benton. Raj and Ryan will provide remarks followed by Q&A.

Before we begin, please note that today's call contains forward-looking statements that are subject to risks and uncertainties. These statements are based on current expectations and may differ materially from actual future results due to various factors. For a discussion of these risks, please refer to the disclosures in today's press release and our filings with the Securities and Exchange Commission. You can find these materials on our website at ir.enovix.com.

All statements made on this call are as of today, February 25, 2026, and we undertake no obligation to update them, except as required by law. Additionally, during the call, we may reference non-GAAP financial measures. You can find a reconciliation to the most directly comparable GAAP measures in the materials posted on our Investor Relations website.

With that, I'll turn the call over to Raj.

Good afternoon, everyone, and thank you for joining us. The fourth quarter represented continued progress as we transition from qualification into early commercialization across multiple end markets. First, we continued advancing smartphone qualification for the AI-1 platform with our lead mobile customer. Second, engagement expanded across smart eyewear and other AI-powered devices. We view smart eyewear as an earlier commercialization pathway for AI-1 due to lower qualification barriers and thresholds. We are currently preparing production to support initial high-volume demand from our lead smart eyewear customer.

Third, defense and industrial programs continue to provide revenue, operational validation and manufacturing execution experience as we prepare for consumer scale production. Finally, we ended the year with a strong liquidity position, giving us flexibility to execute our commercialization road map while maintaining disciplined capital allocation, including recently authorized share repurchase program. Overall, we believe 2025 positions us well for the next phase, moving from qualification towards commercialization across smartphones, smart eyewear and additional defense applications, and we'll walk through that progress today.

For the full year 2025, revenue grew 38% year-over-year to $31.8 million, with the defense shipments remaining our largest contributor and batteries for naval munitions specifically being our top product in Q4. Full year non-GAAP gross margin improved to 23%, reflecting higher production volumes and improved mix shift towards higher-margin defense batteries following our April 2025 asset acquisition. We ended the year with $621 million in cash, cash equivalents and marketable securities, supporting qualification completion, commercial scale-up and additional potential strategic transactions.

To support this next phase, we strengthened our operational leadership. Kihong Park, or KH, as he prefers to be called, now leads our global manufacturing organization, bringing decades of battery production experience and deep operational knowledge from our South Korea platform to our Malaysia scale-up efforts. We also welcomed Ed Casey to lead advanced manufacturing engineering, adding significant expertise in scaling complex high-volume manufacturing environments across global networks. Together, this leadership alignment reinforces our focus on manufacturing execution as we prepare for high-volume production.

We continue to improve yield and throughput across Fab2. As we discussed in our previous call, Zone 1 laser dicing remains the primary rate limiting factor, and we are methodically addressing that constraint through process optimization and alternative dicing approaches. We believe in our ability to unlock higher production rates as we transition towards commercialization.

In 2026, we are capable of qualifying other new products and customers in the very production line they will use and meeting demand for smart eyewear customers. Our overall company focus remains on disciplined execution, advancing smartphone qualification while expanding into adjacent markets that support earlier revenue and manufacturing scale and leading in smart eyewear markets with our silicon battery shipment. You'll see how these pieces come together through today's presentation.

Now let's talk about markets. Last quarter, we introduced this framework for outlining the end applications where our technology can create a durable moat. The smartphone market represents the fastest path, the large scale and is ideal for our technology. An independent study from Polaris Labs previously validated our energy density leadership in smartphone batteries. And this quarter, we extended the validation through a second apples-to-apples comparison against the leading competitor using identical methodologies. The results confirmed that AI-1 delivers a meaningful volumetric density advantage versus commercially available silicon-doped lithium-ion batteries. We expect AI-2 and AI-3 to further expand our technology lead with performance gains well beyond historically industry advancement rates.

This quarter, we updated this slide by breaking out smart eyewear and drone applications as distinct growing addressable markets where our engagement has progressed. Smart eyewear adoption is presently accelerating as AI workloads migrate to compact always-on devices. We expect to ship our first smart eyewear batteries for use in AI/AR devices in the second half of 2026. Exceptional growth in this market is expected to continue throughout this decade with display-enabled architectures that significantly increase power demand and require higher energy density for constrained form factors. We believe smart eyewear battery TAM could exceed $400 million by 2030, and we are targeting meaningful participation based on early engagement with key partners and strong technical suitability.

Drones represent another priority area of focus where we see an attractive TAM and a strong competitive advantage. Western drone platforms, both defense and commercial, are increasingly prioritizing higher energy density, extended flight time and supply chain diversification. This battery segment is projected to be approximately $1.5 billion this year. Breaking these markets out reflects growing conviction that we are well positioned across multiple high-growth platforms.

With that context, let me walk you through our smartphone qualification progress and the defined pathways we see towards commercialization. Turning to our smartphone commercialization plan. We remain engaged with 7 of the top 8 global smartphone OEMs by market share and validation efforts have expanded this year with multiple leading OEMs, including those serving the U.S. market. Our near-term focus, though, remains on 2 Asia market leaders with Honor being our lead customer. We commenced their formal product qualification process in the third quarter of 2025. Most of the requirements have now been met, and cycle life testing remains the primary gating item to complete qualification and move into system integration and production planning.

Because cycle life testing is often misunderstood, particularly for silicon anode batteries, let me spend a minute explaining what these tests actually measure and why they matter for real-world smartphone usage. The key point, and what we want to clarify next is that cycle life results are complex and depend heavily on test protocols, which is especially important when evaluating next-generation silicon anode technology. When we say cycle life testing, we are referring to multiple tests based on different charge and discharge rates, or C-rates. This is a standardized measure how quickly a battery is discharged relative to its total capacity, where a 1C rate means the battery can be fully discharged in 1 hour and a 0.2C rate means battery discharge in 5 hours.

This slide illustrates relative C-rates across common smartphone applications. The highest power consuming activity is video recording, which requires approximately 0.17C discharge rate. We include a host of other popular consumer applications as well as scenarios for running multiple applications simultaneously to account for use cases such as using ChatGPT while also playing a Netflix movie.

When we refer to our lead customers' primary qualification requirement of 1,000 cycles, that is based on a rate of 0.2C. As you can see that everything below this level, which is why smartphone as well as smartware OEMs rely on this test to ensure batteries provide a positive experience for a wide range of consumer usage patterns. A test purely based on this rate would take a year to complete though. So most companies compress the test time to 4 months by using an accelerated 0.7C rate for a majority of the cycles where the battery is fully discharged in 1.4 hours. Smartphone OEMs also included in their qualification process, a secondary requirement of 800 cycles for just the 0.7C cycles, though this C-rate is well beyond any single app consumption we are aware of.

For the parts shipped in December, customer qualification testing for cycle life began in January. This testing is progressing in parallel under customer control protocols. On this slide, you can see how batteries we send to our lead customer perform in our 0.2C cycle test. We made improvements over our initial version submitted in July, and our internal test indicates we are now likely to exceed the requirement of 1,000 cycles at 0.2C rate. This is a significant achievement that is indicative that our product is approaching readiness for integration into commercial products.

However, these same batteries are not currently on track to exceed the accelerated 0.7C target. As it is the first time a 100% silicon anode smartphone battery has been brought to the market, we are working closely with our customer on alternative pathways for testing that is more suitable for silicon anode batteries. So while customer testing ultimately determines qualification, this internal data set gives us increasing confidence that the current batteries are tracking towards the required performance.

Because there has been no 100% silicon battery qualified in a smartphone, there are no defined testing protocols for qualification. Based on current test results, we're discussing multiple pathways to qualification with our lead customer. The first scenario is approval based on our 0.2C results and acceptance of the 0.7C cycle life below their current requirement. A second scenario involves adoption of new accelerated testing protocol tailored for silicon anode batteries. Finally, we're also continuing to develop improved electrochemistry variation to hit the 0.7C target.

While we believe our battery platform is ready for deployment, we also understand that we are entering the largest consumer electronic market in the world. Customers appropriately maintain a high qualification bar for new entrants. We look forward to meeting all the necessary standards in 2026 and transitioning into commercial production. Initial smartphone-related revenue in 2026 is expected to support system integration and launch preparation, positioning us for a larger scale commercialization in late '26 or beginning in 2027.

Now let's turn to smart eyewear. We view smart eyewear as an earlier commercialization pathway for AI-1 due to shorter qualification cycles and lower durability thresholds. We believe this market represents a compelling near-term expansion opportunity for the platform, where our high energy density architecture is well aligned with product requirements. Our engagement in this category began early, and we're working with partners we believe are well positioned to lead in this market as it scales. Compared to smartphones, where an incumbent is deeply entrenched, this creates a more direct path to initial adoption. Our focus now is execution as we prepare for initial volume shipments to lead smartware platform later this year.

Today, the eyewear market is dominated by products without displays, largely focused on audio, connectivity and basic AI assistance. However, over the balance of this decade, we expect more than 5x unit growth as display-enabled ecosystem emerge, which translates to even higher battery TAM expansion as ASPs increase over the same time frame. Display-enabled eyewear materially increases the power demand. Always-on AI processing, image capture and augmented reality overlays create sustained energy draw in highly constrained form factor. That combination, compact design and higher sustained power consumption is precisely where volumetric energy density matters most.

Based on current engagement, which has accelerated rapidly, we expect smart eyewear to represent an earlier commercialization pathway for the AI-1 relative to smartphones. As this market matures, we estimate the smart eyewear battery TAM could exceed $400 million by 2030, and we believe AI-1 is well suited to participate meaningfully in this market.

This slide illustrates how our platform aligns with smart eyewear cycle life requirements. Importantly, in this segment, customers typically require less than 1,000 cycles durability at 0.2C rates and do not have a pure 0.7C cycle test. Our energy density architecture is optimized for constrained space and sustained power draw. And because we architected AI-1 first for smartphones, the segment which has the highest technical qualification standards in consumer electronics, we believe extending the platform into smart eyewear is comparatively more straightforward from a performance standpoint.

Once we designed for the most demanding use case, adjacent applications become natural extensions of the same core architecture. That allows us to prioritize energy density and power efficiency while comfortably meeting eyewear durability thresholds. In addition, we expect this market will have a mix of smaller customers who address a wide range of fashion preferences and use cases that are also enabled by the budding Android XR ecosystem. This means our future sales mix may include meaningful percentage of off-the-shelf products in addition to customized products for the market leaders. We are seeing this dynamic play out already with multiple wins we announced at CES earlier this year.

Let me now turn to defense. Defense continues to provide both revenue and operational validation of our technology and manufacturing capabilities. We operate 2 differentiated defense-focused platforms across our global footprint. In Malaysia, we're advancing our 100% silicon anode architecture, our largest format AI-1 variation optimized for high energy density applications. These batteries are well suited for next-generation soldier systems, including augmented reality headsets and wearable power systems. We have supported U.S. Army programs since 2021 and recently provided deliveries under the conformal wearable battery program.

In Korea, we have a conventional architecture platform utilizing graphite and silicon anodes. This facility has an extensive operating history in Korean defense markets and supports a wide range of battery sizes and configurations optimized for high discharge rate applications, including drones, subsea systems and munitions for several Korea's large defense contractors. Naval munitions specifically were the largest growth driver in 2025, and our pipeline is increasingly focused on expanding our presence in the aerial drones market.

In 2024, we kicked off a campaign to introduce our technology to U.S. and European military contractors who are attracted by our diverse supply chain and internal manufacturing capacity. Establishing initial programs and building a pipeline has required time, but it is starting to pay off. We enter 2026 with a global pipeline of approximately $100 million, including opportunities with multiple Tier 1 defense contractors. Recent design win traction in Q4 has strengthened our confidence in pipeline conversion. As programs progress, we expect to provide greater visibility into customer engagements as we convert pipeline to backlog.

Aerial drones represent a compelling battery growth opportunity with an estimated $1.5 billion TAM this year. Next-generation drone platforms require higher energy density to extend flight time and strong discharge capability to support power intensive missions. As autonomy and AI capabilities expand, power requirements will continue to increase. Our platform aligns well with these needs, enabling longer flight times, sustained high discharge performance and diversified supply chains through our manufacturing in Korea and Malaysia. We are building on deployed defense cells and existing customer relationship to expand into next-generation silicon anode drone applications. This segment demonstrates how our architecture scales beyond smartphones and supports a diversified growth strategy.

This slide highlights our energy density progress in drone applications. Today, we have deployed defense cells supporting high discharge drone programs. We are now advancing a higher energy drone cell in development with internal testing achieving approximately 342 watt hours per kilogram.

Looking ahead, our next-generation silicon anode road map targets energy density above the 400 watt hours per kilogram to support increasingly autonomous platforms. The road map shows clear progression, deployed cells today, higher-energy product launches next and next-generation silicon anode performance that expands mission capability.

Now I'll turn it over to Ryan to talk about our financials. Ryan?

Thanks, Raj. First, a few highlights on the fourth quarter results. Fourth quarter revenue was $11.3 million, a record for Enovix, up 16% year-over-year and above the top end of our guidance range of $10.5 million. This performance was driven by continued strength in defense and industrial shipments out of Korea.

Non-GAAP gross profit was $2.9 million for a non-GAAP gross margin of approximately 26%. While margins can fluctuate quarter-to-quarter based upon product mix, Q4 benefited from higher volumes and operational improvements in Korea. Non-GAAP operating expenses were consistent with our planned investment levels, reflecting continued investment in smartphone and smart eyewear qualification programs as well as Fab2 readiness. Non-GAAP loss from operations was $28.9 million, modestly better than the guidance range of $30 million to $33 million. Non-GAAP net loss per share attributable to Enovix was a loss of $0.14, also better than the guidance range of a loss of between $0.16 and $0.20.

With respect to the balance sheet, we ended the year with approximately $621 million in cash, cash equivalents and marketable securities, providing substantial liquidity to execute on our commercial plans as well as enabling us to evaluate strategic opportunities from a position of strength.

Additionally, the Board authorized a share repurchase program, reflecting confidence in our long-term strategy and adding another tool to our capital allocation framework as we focus on long-term shareholder value.

Turning to the full year results. For the full year 2025, revenue totaled $31.8 million, a record for the company, representing 38% year-over-year growth. This growth reflects sustained execution in defense and industrial markets, while new products in the smartphone and smart eyewear markets advance towards commercialization.

Full year non-GAAP gross margin improved to 23%, benefiting from higher volumes and demonstrating substantial progress in manufacturing execution. Capital expenditures for the year were disciplined and aligned with our staged manufacturing expansion plans. Overall, we exited 2025 in a stronger financial and operational position than we entered it, with growing revenue, improving margins and substantial liquidity to execute upon our road map.

Now turning to Q1 2026 guidance. For Q1, we expect revenue in the range of $6.5 million to $7.5 million, reflecting normal seasonality and program timing of defense shipments. We expect non-GAAP loss from operations between $29 million and $32 million, reflecting continued investment in product qualification and manufacturing readiness. We expect capital expenditures between $9 million and $11 million, primarily related to Fab2 equipment. Actual cash payments in Q4 were lower than previously guided due to the timing of equipment and vendor payments. The majority of those payments are expected to occur in the first half of 2026.

This is primarily timing, though we also made a couple of intentional near-term adjustments. Coincident with the operations leadership transition, we made 2 adjustments to our capital plan. First, we deferred initiation of the NPI line in Korea to allow KH time to fully evaluate priorities and sequencing. Second, given the high demand for products from our Korea factory, we are accelerating adding incremental capacity there. This is a relatively modest investment supported by high customer demand and opportunities.

On the M&A front, to provide a little bit more color there, we continue to actively evaluate a range of opportunities, both smaller and larger, that could accelerate commercialization or strengthen our manufacturing and technology position. We will only deploy capital with a focused and disciplined approach, especially with respect to strategic fit and price.

And with that, I think we're ready to take questions. Operator?

[indiscernible] Q&A session. Please note that this call is being recorded. Before we go to live questions, we're going to read the 2 most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is, how does your current strategy differentiate Enovix from competitors?

Thank you for that question. So Enovix, we use 100% active silicon anode. Most of our competitors use graphite for the anode. Silicon anodes can store much more lithium. So we are able to provide much higher energy density because of that. One of the problems with replacing graphite with silicon is that the silicon tends to swell when using a battery when doing a charge and discharge. We've got an architectural advantage where we figured out how to enable the silicon anode from not swelling while maintaining the energy density advantage. That is our main advantage, and that is how we differ from most of our competition because we provide much higher energy density due to using 100% active silicon anodes.

Thanks. The second question is, at our current burn rate, how long is our cash runway? And under what conditions will we need to raise additional capital?

I'll take that one, of course. First, we ended the year with approximately $621 million in cash, cash equivalents and marketable securities. So we're operating from a position of strength, in my opinion. Second, I'd caution against thinking about runway purely in terms of static burn rate because our spending is tied to a very specific qualification and commercialization milestone set. As those programs progress, the working capital and capital expense profiles will evolve as well. As we said in the prepared remarks, we believe we have sustained liquidity -- substantial liquidity to execute on our commercialization strategy without needing to raise capital in the near term. That said, as we've discussed before, beyond that, we will always evaluate capital allocation options such as strategic M&A opportunistically but with process rigor.

[Operator Instructions] Our first question comes from Mark Shooter with William Blair.

Can you hear me?

Yes, go ahead.

Great. So I appreciate you getting into the details and geeking out with us a bit on the smartphone C-rates test requirements. The 0.7C rate life cycle test is definitely overkill for smartphones, but it's an incumbent standard, and they're notoriously sticky and difficult to change once established. So I'm wondering in your engagements with Honor, how receptive were they when you suggested the change? And given that cycle life and energy density are always paired to trade-offs, would Honor take a formulation that hits that 0.7 rate cycle life spec with a slightly lower energy density?

Yes. Thanks, Mark. Thanks for the question. Yes, I think the first thing is to -- the reason I showed some of the material in this talk is to actually show that most of the use cases in the smartphones, as the batteries get bigger and bigger and more and more capacity, are under 0.2C discharge, which basically means that we have a battery that now we believe under 0.2C average discharge rate, goes over 1,000 cycles. So we essentially -- we feel we have a battery that meets the requirements of the smartphone market.

Now as I said, one of the challenges is if you want to test if the battery meets the requirements at the -- how the normally battery is used in the phone, it's going to take a year to at least to run that because if you run at 0.2C, it takes a long time. So customers typically use a higher rate of discharge, like 0.7C, to cut the amount of time it takes to test. This is very similar to people used to use a burn-in test, for example, for chips, high-temperature ovens, try to find the early failures.

When you change technology from graphite batteries to silicon anode batteries, silicon anode batteries behave differently when you discharge them very fast, in this 0.7C. So Honor and our other smartphone customers, we've talked to them, they understand that. They realize that this test is a proxy and an accelerated test and not a true test. But, like you said, this is a test they have been using.

So we are in discussions with them. We see 3 pathways forward. One is, we're able to convince them that this is not a real-life test and the real-life test is really 0.2C, and we can get a waiver on less cycle life for 0.7C, for example. By the way, this has got nothing to do with energy density. It's purely about cycle life testing. So it's not like they need to take a lower energy density. They just have to take a lower cycle life on 0.7C, which is not a real test, an accelerated test. The second one is we have to find together with them another accelerated test that is more representative, if you will, for silicon anodes. And we have some ideas on what that is, and we are discussing with them on that. The third one is we'll just have to modify our electrochemistry just to pass this test at 0.7C. So we are working on all 3 of those.

Ultimately, there is a lot of interest from our customers in wanting to use our batteries because of the higher energy density we provide. And the road map, even higher energy densities because of 100% silicon anode. And those conversations are going well. But ultimately, we need to solve this passing of this test to a way where they and us both are comfortable, that in the real-life use case, when ultimately the battery is put in the phone, it's going to do really well and everyone is happy with the performance.

I appreciate all the color there. If I can switch over to the opportunity in smart glasses. In the presentation, you gave a lot of information there on the TAM as well. The performance advantage with Enovix's cell and technology goes up, but the battery application requirements get easier. So I can see this is your faster commercialization path. But you did mention an initial production demand in your -- in the release statement. So I mean, should we think about that as a purchase order? Or is that a next step? And can you frame what the revenue opportunity might be for '26? Or is this a '27 story?

Yes. Good question. So as you alluded, when the battery gets smaller but still the energy requirements or capacity requirements are high, we have a disproportionate advantage because the smaller it is, the efficiency we have is more -- better compared to our competition because the additional stuff we put in there for holding the cell from not expanding is not as much of a penalty, right? So that's why I think it's much -- we are much more competitive there. And also the cycle life requirements are much, much lesser. They don't need to do 1,000 cycles because people probably change their glasses much quickly. So those 2 are very good.

And also, the battery in smart glasses is the limiting factor. I mean, if you guys actually buy some of the smart glasses in the market today and start using them, you'll find that almost none of them come all day. Smartphones come all day, but most of these things will die in multiple hours. So a better battery makes the product. That's why there's a lot of interest from our customers on using our battery.

And also, there's lots of different kinds of applications, lots of different kinds of products. This is what I mean by -- there could be sport glasses, there could be utility glasses, there could be fashion glasses. And as I mentioned, when Android XR ecosystem comes, there will be even more products using that. So that's why the TAM is now suddenly much larger we expect it to be in the next few years than we ever thought before. So I think that's why we are very excited by this market and the fact that we can get there.

Yes, you absolutely should think of the question you asked as a purchase order, and we are manufacturing them now to our lead customer. We are very excited by that. The whole team -- I was in Penang last week. The whole team is focused on executing that and building those products and setting it out. Initial volumes will be lower just because they're just starting. But I think that '27, '28, we expect the market to really grow and be meaningful for us. So we're excited by that.

Yes. If I can just jump in and chime in. Had an old boss, used to say, "All dollars are not equal." It's a very important order for us.

The next question comes from George Gianarikas with Canaccord Genuity.

Incredible level of detail in presentation. Appreciate it. So maybe first question, you pointed to sort of a little bit of an issue with the electrode dicing and the manufacturing process getting yields up there. How much have you been talking with your potential future customers around fixing that issue maybe together in anticipation of ramping production towards the end of this year?

Yes. I think, firstly, as I mentioned, the yields on almost -- on all steps are above 80%, as you saw in our -- 80% or above, as I mentioned. On the dicing side, they're close to 80% but not quite there in fourth quarter. But this quarter to date, we're at 80%. So we feel confident that as we make progress, it will sort itself out. But that's because we just started making 2 batteries, right? We just started making the smartphone battery and smart eyewear battery. We've been sampling a lot of batteries last year. We're now focused on 2 of them, one on Agility Line, one on H-volume line -- high-volume line, and we'll continue to work on each state to get it better.

Our customers have visited our factories. They have seen it. We've got man through multiple customer audits. We have enough supply to meet all the requirements for 2026. And we're looking at various options to increase the throughput and get even more cost-effective than laser dicing methods to actually get the volumes up. So yes, a lot of focus on that, and we are working with our customers on that.

And maybe with regard to the drone opportunity, can you sort of talk about the different variations of chemistries that you have to work with them? I'm assuming these are silicon-doped cells, not 100% silicon that you're approaching the market with first. And so how many different chemistries do you need to approach that market? And do you need, like, any additional salespeople to sort of attack it?

Yes. Great question. This, we have been making. We haven't really talked about it too much in the past. We have been making very high performance, high rate of discharge cells because we were selling into -- a lot into the Korean military from our Nonsan facility. And some of the requests came from drone batteries, and we started making those.

What we find now is, with the market expanding fast, because as you guys have seen in the more recent political situations, there's lots of drones being deployed, both in commercial and also in military, we have now combined -- used some of our knowledge on using 100% silicon anodes with our Nonsan team. And now we dope those batteries also with silicon anode -- with silicon -- the graphite with silicon and to increasing amounts.

As I mentioned before, when we put more and more silicon, the cells, the batteries swell. So that problem hasn't gone away. But since they are inside things like drones, even if those cells swell 10%, 15% or more, there's space inside to accommodate that. So we have now found that we can make high gravimetric energy batteries that do swell a little bit, but still good within the application. Whereas in a smartphone, if you swell, it's not acceptable because it's very space constrained.

So they are both -- so in that sense, I think it's been a really good thing for us. As I mentioned, we have a strong road map now, and you will see us sampling much higher watt hours per kilogram cells this year and just continuing to increase that through next year. And we have a lot of customers now helping us with that, too.

Our next question comes from Colin Rusch with Oppenheimer.

Can you guys hear me okay?

Yes, sir.

Yes, Colin, go ahead.

So guys, exciting that you're moving into the drones. Can you talk a little bit about the form factors that you're working on there as well as the diversity of electrolyte and binder materials and binder processes that you can -- you feel comfortable talking about at this point? Just want to get a sense of the full ecosystem here and potential product diversification that you might see within that opportunity.

Yes, sure. Again, like I said, it's a pretty big market and all of them are not same, right? There are subsea drones. There are aerial drones. There are big aerial drones that carry a lot of weight. There are smaller ones that carry some munitions and maybe onetime use and just used for a few times. So we have different chemistries and different electrolytes to address that market.

Here, this is one of those areas where we can trade off cycle life for energy density, for weight and so on because you don't need to charge them 1,000 cycles, right? So that's really not a requirement here. 300 is plenty. So suddenly, a lot more opportunities open up for us in terms of the electrochemistries we use. And our team in Korea has been doing this for a long time. So we have multiple chemistries going after that, some purely graphite, some graphite doped with silicon, a different kind of cathodes. So multiple form factors, multiple products. But we understand this market pretty well.

And the other important thing is, in this market, having your own factory is really a big deal because manufacturing -- that's something that our customers tell us that the fact that we own our factories and we can make them in Korea or Malaysia is a big advantage compared to some of our competition who actually have to use contract manufacturing in China and other places. So these are sensitive areas where having our own captive manufacturing helps us quite a bit.

And I'll add to it. I think I was going to say part of the question, I do expect that we'll add to the sales and business development organization to support that. So it's kind of the time to build that group out.

That's right, yes.

Great. And given what's going on in the U.S. in terms of trying to migrate manufacturing and secure supply chains back into the U.S. over the next few years, even from Korea, can you talk about some of your capital planning on a multiyear basis as you enter that market in terms of having to have some localized or regionalized supply in the Western Hemisphere to serve some of the [ U.S. military ]?

Yes. I mean, at this point, as Ryan mentioned, we were fortunate to acquire this facility in Korea last year from SolarEdge that added 300,000 square foot of total capacity we have -- factory we have in Korea now, with a very capable team that's been building batteries for defense for like 20 years and industrial applications. So we have a large footprint there, and we are now going to invest more into that this year to get more capacity there.

And again, so far, I think manufacturing in Korea, our manufacturing in Malaysia seems perfectly acceptable. We'll continue to see if it makes sense to bring something into the U.S., but we are quite -- our customers are quite comfortable right now with those 2 facilities.

The next question is from Jeff Osborne with TD Cowen.

I appreciate all the detail on the call so far. I wanted to know, Raj, relative to the last earnings call, 3 months ago or so, the 0.7C metric that you mentioned, is that new? Because you referenced sort of a 4-month testing period. I'm just curious like when the parameters changed? And then when that -- I think you referenced a 4-month sort of shot clock to proceed through the testing process and procedures. Did the 4 months start 3 months ago and you'll know next month? Or did you get that new homework assignment, so to speak, in the past few weeks?

No, that's always been there as a requirement. And our thinking was that we will figure out a way to -- I mean, we will pass that requirement also. But I think what we find now is with 100% silicon anode batteries, 0.2C requirement is something we can pass because that's -- we have data now that shows that. When you discharge a battery like 100% silicon anode battery at 0.7C rapidly, which is not a real use case, as I mentioned, you just do it for convenience. It doesn't behave like the graphite batteries do. It behaves differently. So in that sense, it's one of those cases where the accelerated test itself has to be adapted a little bit for the kind of battery we are using. And we showed this to our customers, and they understand it. So we're not discussing what the right way to resolve this is, right?

So it's not a new homework assignment. The results is what we have now, is we've solved the 0.2C problem, which I believe is a real problem in terms of how a battery is used in the phone. Now we are working on how to resolve the 0.7C accelerated test in a way that both us and our customers are comfortable.

And do you think that can still be done in a 4-month window that started at some point this quarter? I'm just trying to understand like when do you expect, knowing what you know now, to pass the Honor test, so to speak?

Yes. Like I said, I think there are 3 pathways for us. One is, we have results now on 0.7C that don't go all the way to the cycle life that they want. But we are talking to them about how real is this, like it's a proxy test, can we get comfortable? And for example, get a waiver that you pass these many cycles, it's okay as long as the 0.2C is holding 1,000 cycles. That's one pathway. That may be the shortest one.

The second one, maybe we come up with a different accelerator test, which we believe is more representative or better -- makes them comfortable that silicon anodes, if we accelerate test like this, they behave like how they would in real-world use case. We are working on that, which is a different testing protocol. And the third one is they say, "No, you just got to pass this." In which case, we'll have to change the electrochemistry and find a way to pass this, which we have some ideas on how to do. The team is working on that. That might take longer.

So depending upon which one we are able to convince them, we'll gate how much the time is. So we do believe that one of these things we'll be able to convince them before the end of the year and get some volume.

Got it. And then maybe for Ryan, just given Raj's answer on the 3 different outcomes there, as it relates to sort of modeling the business over the next few quarters, I know you only give formal guidance 1 quarter out, but I assume we should think about eyewear as the main driver outside of the Routejade facility for the next 6 months or so? That is part A of the question. And part B, can you just remind us of what you expect seasonality to be for defense? You've got a pretty precipitous decline in Q1. How should we think about that rebounding in Q2 to through the rest of the year?

Yes. Thanks, Jeff. The first part of your question, the answer is yes. So for the first -- the near term, that's -- you heard it right. So smart eyewear is the more near-term opportunity. And then the second part of your question in terms of seasonality, exactly right. So if you look at the same pattern in terms of revenue that we had last year, Q1 tends to be soft based on the order pattern of these long-term defense contracts and then the back half of the year tends to be much stronger. Kind of evidenced by our Q4 that we just printed, which was record quarterly revenue.

Got it. And then maybe last one quickly for you. Just CapEx for the year, should we think about $50-plus million? Or what's the expectation?

We don't give -- apologies, we don't give guidance beyond the quarter. I think we gave guidance for just Q1 and just speak broadly about Q1 in general, we talked about the HVM-2 line. We've already started placing some orders for some of the long lead, but we'll reevaluate all of our plans now with KH, who's in this new role of Head of Operations, who's wonderful to work with, and we'll just be smart and prudent how we phase those orders out over the year.

The next question comes from Will Peterson with JPMorgan.

I wanted to come back to the question about your Korean operations. Can you give us a sense for what the combined, the 2, Routejade and the other one, can support in terms of megawatt hours or revenue? Just trying to get a sense of the run rate you could support at sort of max capacity? And then how much capacity do you plan to add? And what -- can you give us any sort of sense on what investment you're considering?

Do you want to take that or me?

Go ahead.

I'll go. Again, with that, we haven't given out specific numbers in terms of megawatts, but we -- I think we've talked publicly about how this is a facility that will support significantly higher revenue streams, maybe 2x, and we're investing -- we're making decisions in terms of deploying capital right now, which would incrementally add to that. Again, I don't want to quote an exact number, but it's -- we recognize what a great opportunity we have here in some of these markets that we've talked to, and we've got a great team to support. So we're starting to invest dollars. But again, the -- I think you can see the type of numbers that we've invested in Korea over the last couple of years compared to the dollars that we're investing in PEP-2, they're relatively small, but they're really important in terms of the ROI that they can return both in terms of dollars and strategic return.

Yes. One other color I'd add is, we have a much larger facility now. Like I said, we have a fairly large facility that we acquired with a lot of machines. So we will be adding incrementally and in a scalable manner. So some of it that we acquired is usable. For example, we have a huge coater that we acquired from there that the coating -- we don't have to add new capacity, and coater is very expensive. But then we can add more to the dicing and stacking in a scalable manner. So we don't have to do it all at once. The facility is there, so we can prudently add it as and when we see the demand and the qualifications materialize. So it's been very fortuitous that we got this facility and now the demand is coming to us.

I appreciate that. And then coming to the key, I guess, your first smartphone customer, trying to get a sense for the key learnings from the chemistry reformulation process. And how many more, I guess, options do you have with this customer? And you gave, I guess, a pretty clear example of cycle life. I guess is there differences in requirements between the various customers? Anything you can kind of give us to better understand what, I guess, opportunities you have ahead?

Yes. I mean, look, the learning here is this for me, right? I think the learning is we wanted to give a lot more color on this call and our report on exactly what it is. And what we have learned over this is the smartphone requirements are very, very difficult because this is the largest market for portable batteries and consumer electronics, great margins because they provide clear value, huge TAM. But when you make a battery for that, the rest of the markets are much easier because this is the toughest one.

And to replace an existing graphite battery and existing graphite battery ecosystem with 100% silicon anode battery, one is, meeting all the requirements. Second is, helping and learning with the customers on accelerated tests or other tests that they have put together, have to be updated a little bit for this particular kind of technology. It was kind of like thinking about when you started to add -- I don't know, I remember in my past, we added fingerprint sensors to phones. So now you've got to face ID. It's completely different, right? So it's still a biometric authenticating system, but the test cases are different and the way you use is different. So whenever you introduce a new technology, you have to work with the customer in enabling that.

The reason that the customers are interested in, although it's different, is because we can provide an energy density road map that's not possible to do by just graphite batteries. And that is an absolute requirement. As I mentioned when I first took this job, the AI use case is only getting more and more and the demands are getting higher and higher. And now as I mentioned, I think a few calls ago that I expect these batteries to go to 10,000 milliamp hours, and now you see that. And they can't keep getting bigger because the phones can't get any bigger. So the customers are highly motivated to help us get this technology to market. But when you totally change the graphite anode to silicon anode, here, we have to work with them to make that to qualify.

So if you look at the progress we've made, it's tremendous. I mean, I think we showed -- we have specs of like 75 different specs, and we passed most of them. So we are converging, and it's been a fantastic learning. But at the same time, other markets like eyewear are much easier to do because of this. And there are so many other markets like that, that are much easier, like if you think about wearable cameras and so many other markets where AI at the edge is really creating, there are great opportunities for us once we get this smartphone battery done or even before as we've gained a lot of technology advancements in the last few years working with our smartphone customers.

Our next question comes from Derek Soderberg with Cantor Fitzgerald.

I was curious if switching out the dicing technology sort of resets any part of the battery qualification process. Obviously, your customers want to make sure you guys can scale and putting aside any of the cycle life testing, might the change to the dicing technology push back that qualification process at all?

Look, any time you have a customer qualify one particular product, if you change some steps within it, we will need to communicate what those steps are and what it changes, and we will need to run some form of qualification again. That's just the way it is. Even when you move from one fab to the other, you got to do that. But the way we would do it is, these are all by different zones. For example, dicing is Zone 0 and then Zone 1 and then stacking is Zone 2. So there's many ways in my experience, we've done this. We established equivalents. We show similar performance. We can do a subset of the qual. So there's many different ways to do it, but it's still a little bit early. Right now, we are doing laser dicing on all of them. When we do some other form of dicing, we'll work with the customers to gradually phase it in.

Got it. And then just a quick follow-up. Are there any remaining technical milestones to shipping commercial volumes in the back half of the year for the augmented reality market?

Any technical milestones was your question?

For smart eyewear.

Yes. So I mean, look, we now have seen the products from our customers with our battery in them. Very exciting. We saw a few at CES. We saw a lot more in private demos. The performance is fantastic. They really like it. They really like what it's able to do and what the AI is able to do. We don't see any big technical obstacles. But this is a new market. It's a new application. So the applications are evolving. So they are doing testing of different applications. And as and when they find them, we'll figure out how to adjust it.

We did learn about one thing after we first sampled in terms of how to -- different rates and different pulses and so on, and we quickly adapted that, and now we have a new battery that meets that. So my team is very capable of quickly reacting to those now. But right now, the battery we have, we feel meets all the requirements. That's why we got a production PO, yes.

The next question is from Alek Valero with Loop Capital.

This is Alek on for Ananda. So my first question is, what is a good way to think about the cadence of testing and production over the next few years for smartphone, eyewear, PCs and drones? Additionally, what do the capacity needs look like over that time frame? I have a quick follow-up.

Cadence of testing, how do you mean by that? Maybe you can ask a little bit better. In terms of timing you mean, how long it takes or...

Yes. I guess what's the timing of the phases of the testing?

Yes. So my experience in the last 3 years has been that typically, we provide a standard size cell to the customers that one we have. And they give us a set of requirements in terms of cycle life, energy density, rate of charge, discharge, swelling requirements and so on. And they'll do a bench level test of that. That takes a few months. When they're comfortable with that, they come back to us and ask us, hey, we want a particular -- if they are happy with that particular size and then they put it in a product and then there's a product level testing that takes a few more months. But if they want us to change the size, it will take us multiple months to come up with a different size, like when I say size dimensions, X, Y, Z and so on, to fit in that. That becomes a long pole, maybe 3 to 4 months to build that.

And then they will put in the product and do the testing again. And then when all of them have passed, they place the PO. And they do system-level testing now. They put it inside a product, test to make sure the product is performing like it's always supposed to perform, and then they go to production. So if you -- and that whole cycle can take anywhere between 1 year to 1.5 years for a brand-new customer starting from scratch.

Now if the requirements are not as stringent and we already have a technology that meets those requirements, for example, it can be much shorter because we don't really have to change anodes and cathodes and electrolytes and so on. Like, for example, when we have a product that meets the smartphone requirements, we were able to quickly react and make small adjustments and meet the smart glass market -- smart eyewear market. So that -- so now it's much shorter. Now if your cycle life is 1,000 cycle requirement, well, that testing takes like 4 months. But if your cycle life is only 300 cycles, it takes much shorter time.

So it depends based on the end application, whether you need a custom cell or not, whether you can use a standard technology or not. So it's -- the question -- maybe a little long-winded answer, but that's just the nature of these lithium-ion batteries in custom applications.

And drones?

And drones I think can be much shorter. Yes, sorry, go ahead.

No, sorry, go ahead. Apologies.

No, I was just saying drones, very similar. But like I said, the cycle life requirements are much shorter. And the space requirement is not as bad in the sense that there's more room there, so you don't need to exactly make this exact dimension of the cell. Sometimes they stack multiple cells to get the performance. So they may be able to use the cells that we have and stack multiple of them to meet the power. So that time of making a custom cell will come down.

I appreciate the detail. Super helpful. And actually, just a quick follow-up and on that same note. So you mentioned the drones, and I believe you said that's one of the products that could handle a little bit more swelling. Can you speak to other markets besides drones that are maybe similar like this where you could get a little bit more swelling? Is there any markets there that seem attractive that you may want to penetrate in the future?

Yes. I mean I would say industrial markets that have large space, for example, I don't know, think about forklifts, stuff like that, where there's a lot more room to put the batteries in and you put it inside a big pack and you can design the pack to enable some amount of room inside that, right? That -- those are the kind of markets. But if it's a small form factor like earphones or smart glasses or cameras or consumer, they're a lot less forgiving. I would say industrial and defense are probably a little bit more forgiving.

There are no further questions at this time. With that, I'd like to turn it over to Dr. Raj Talluri for closing remarks.

Yes. Thank you. Thank you all for your attention today to listen to the call. I really appreciate all the support, and we look forward to talking to you guys next quarter. Thank you.

Happy holidays. I'm George Gianarikas, one of Canaccord Genuity's sustainability analysts. And we're incredibly happy and grateful to have management of Enovix with us here today for an update webcast. From the company, we have Raj Talluri, CEO; and Rob Lahey, Corporate Development and Investor Relations. Gentlemen, thank you so much for coming for joining us.

Really my pleasure. Thank you, Josh.

So Raj, you're bumping up against your 3-year anniversary at Enovix. And so I'd like to ask you at a high level, what your learnings have been so far being part of this emerging battery vendor? And if there are things maybe you would have done differently from the beginning.

Yes. That's a great question, George. Actually, I can't believe it's been almost close to 3 years. Time really flew by doing this. I'm sorry, my glasses are getting fogged a little bit here. It's kind of hot in the area, and we're turning the heat around, which I am not...

God bless you. It's pretty cold here.

I'm not used to turning the heater on. But no, it's been great. I mean I think the company, I'd say we made a lot of progress in many, many different areas. I'd probably start with company was when I started to now. Maybe I'll talk about it in different segments. If I talk about it, for example, on the product side, I really felt for a company -- early-stage company like this manufacturing batteries, we really needed to go after battery markets that have the largest TAM and largest volume per unit so that we could make one battery and sell a lot of them in the same size because lithium-ion batteries have to be made in different shapes and sizes. And if you made a lot of them in different shapes and sizes, the ROI wouldn't be the same. So smartphones seemed like a great market to really go after, and I had long deep relationships with many smartphone vendors. So I was able to visit them and get some really good requirements from them.

Well, it turned out that, that is the hardest battery to make because the requirements in smartphone are very, very difficult in the sense that you have to go to long cycle life, you have to work in extreme temperatures. You have to charge really, really quickly. You have to be leading edge in energy density and the model size changes every year. But I -- after a lot of reflection, I felt that's the target the company should focus on because if you're able to accomplish all of those, the rest of the battery market, whether it's AR/VR headsets or speakers or computers or any of the IoT devices is much easier because those were the toughest ones to crack. And -- so I had my team focus on that. But that's been a long journey, right? As many of our investors know, it took a lot longer than we expected to get there.

And I was reflecting on why it took that long. I think there is a fundamental difference between batteries and chips. This is something I realized over 3 years of doing this is when all my background has been making chips. When you make chips, there's a whole ecosystem of people we rely on, right? What do I mean by that? There are simulation models for how a chip will behave before you ever tape out. You actually can't predict what the performance would be, clock speed, power consumption and so on. There is Cadence and Synopsys and all these vendors who make tools. There is applied materials, there is a LAN, all these people who make the machines. And it's an industry that's been there for a while. So you use the tools, use the simulation, you rely on ecosystem suppliers, you tape out the part comes out working and you're off to the races.

And the qualification cycle is pretty straightforward at the customer. While batteries are extremely challenging because the ecosystem in battery hasn't evolved over that time. What I mean by that is there are no real good simulation models on how a battery electrochemistry would perform in the world until you make it and test it. You can have models that predict it, but it doesn't quite work like that because electrochemistry is very difficult to model at the molecular subatomic level. So main way people make progress in batteries is through what I call design of experiments. So they make various different experiments of different electrochemistry combinations, anodes, cathode electrolytes, run them, do statistical analysis and find the right one. That naturally enforces a time line that's much longer than chips.

Secondly, we have to build our own machines. You cannot rely on people like Applied Materials and Lam and all that to build machines. You have to build your own machines. Thirdly, there are no software models. So we have to build models of how the battery would perform under pressure and temperature. So we have to build them. So all these areas we have to build. So we had to build the machines and the machines didn't exist, so we had to get someone to make the machines for us. We had to build the models. We built a team in India that builds the models. We have to discover the electrochemistry because 100% silicon anodes have never been put in the market before. So it's been a longer journey because of all those.

Now the good news is when you get there, it's just hard for anyone else to copy that and do that, right? So the battery -- that's why there are not that many successful battery companies in the world. Our competition like ATL and LG and Samsung and a few are out there, but it's not like there are hundreds of chip companies, there are not hundreds of battery companies that make great batteries. So that has been a learning for me. And I think the good news is we've invested in all those areas. We've invested in machines now. We've invested in modeling capability. We've invested in electrochemistry, and we've made progress in all of those in the smartphone area. So that's one learning.

The other one, I think, is we've made a lot of progress in expanding our footprint with the acquisition we made in Korea. We did it in 2 shots. First, we got some business from Routejade, then we bought the rest of the SolarEdge acquisition. That gave us a well-running battery factory. That's actually grown very nicely. We've invested a lot behind that. And it was fortuitous because mainly we were selling into Korean military at that time. But now a lot of other U.S. and other countries need those batteries, and we are seeing a lot of good growth for that. And the other thing that happened there was because the team in Fremont was working on 100% silicon anode.

We were able to transfer some of the know-how how to work with silicon anodes, infuse that into our batteries in Korea. And now we make batteries that have graphite plus silicon blend, which actually increased our energy density, not 100% silicon because as I mentioned many times, you put more than 15%, 20%, it starts swelling. So but we did get the energy density gains as our competition got. And those batteries are extremely competitive now and we're getting a lot of demand for samples and orders from a lot of the defense contractors in U.S. and so on, and I expect that business to grow. So those 2 have been really good.

Now we built a factory in Penang. And I mean, that has been quite an accomplishment in the last 3 years. We built it from grounds up. It is empty space when we started. I think the factory now has maybe 300, 400 people. We built all these machines in Korea and Japan and different parts of the world and moved them there. The factory is producing samples now. So I'd say that's been very good. We hired a lot of great talent into the company. I would say that we have people from ATL. We have people that joined recently from LG. We have people that joined from Qualcomm, from Micron. So very, very strong bench, very strong talent. The company has grown quite a bit, almost 600, 700 people now.

We capitalize the company. We really have a strong balance sheet compared to before. I think we mentioned we have over $600 million in the bank now. So I'd say in the 3 years, we made a lot of progress on many fronts. And the India R&D center, I mean, phenomenal. I'm very happy with that. Nobody has started a battery R&D in India. We did in Hyderabad. I just got a note this morning that we are ISO 9000 qualified. We can make sample batteries there now, test electrochemistry. So if I look back at it, it's been a fantastic 3 years.

Now you asked the other question, what I would have done differently. I think I underestimated how long it takes to get batteries to production, right? I mean I thought we'd be in high-volume production by now, and we are not. We are sampling. And I probably expect it to go to production much faster and much higher volume, much quicker. I think I've learned, right, through that, and the team has learned through that, that it takes longer time and it takes more effort. But the company is in a much better place. So -- and I'm confident that over time, we will deliver what our investors expect us to do. I don't know, maybe that's a reasonable summary and reflection on that.

I actually wanted to double-click on a couple of things that you mentioned that were sort of interesting. So you mentioned this testing process that's way different for batteries than it is to chips. I'm just curious, is AI helping at all with that in sort of accelerating that process?

Not as much. I think AI helps with prediction, but the problem -- so let me talk about battery testing. I think it's kind of important to maybe double-click on that because last earnings call, we talked about cycle life and some investors try to take some follow-on calls to explain what that is. So I think it's important to understand what happens to batteries when you put them in smartphones. When you put a battery in a smartphone, the first thing that happens is people use it all day, it discharges, they charge it in the night, use it all day, discharges. What you find during the day it doesn't discharge at the steady rate.

What I mean by that? When you turn the phone on and let's say, you watch a YouTube video on the 5G modem, it discharges much faster because it's drawing more from the -- you play a high-performance game, it discharges much faster. If you're just doing e-mail, texting or some standby like right now sitting here, discharges much, much slower. And that rate of discharge is a number people use to call 0.7c, 0.2C, 0.1C, let's just say this is a number. 0.7C is the highest rate of discharge that people want in smartphones. Now when you -- when people talk about cycle life, they talk about charging a battery and discharging a battery, charging battery, discharging battery, x number of cycles. Now most of us charge our battery in the night and use the phone during the day, charge the phone in the night and -- I mean, use in the day.

So typically, our rate of charge and rate of discharge in those cases is much slower. It's not all 0.7c all the time. Now the problem is if you give a battery to a newer customer and we say, "Hey, we want you to put our battery in your phone," they're going to try and first test how many cycles they are going to get. Well, if they want to test 2,000 cycles, like how it was going to get used, they're going to test it for 3 years because there's 1 cycle a day because charge and discharge. So you can't do that. They can't wait for 3 years. So what they do is they do an accelerated test. They charge really fast, discharge really fast to a certain protocol. And the protocol, I mean changing the voltage and current at which you charge the battery and predict what the phone would perform like in a real-world situation based on this accelerated testing.

Now again, this is one more situations where I talk about unlike chips, there is no real model for that because batteries just because you test them this way, it doesn't mean they'll perform exactly the same way in the field. So they test to an extreme cases to make sure it will work. So even then what they do is they try to test that in like a few months and predict what that will look like for over 3 years. So when we made the first cells that I announced in the last earnings call that we and our customer, Honor, which I announced at the call, decided that we'll need to do another round of battery chemistry change to get another round of testing. It's because when they were doing this accelerated testing, they have found that the slope at which the capacity goes down -- okay, by the way, I should mention, when you do testing, all batteries, the capacity goes down over time.

So it's not like the battery dies after 1,000 cycles. It doesn't have as much capacity as it did at starting. So what they're trying to measure is how much capacity is dropping after every cycle of testing. right? All of you might know, you get a phone, you charge it. It looks great 2, 3 years from now. It says it's fully charged, but it doesn't last the whole day. That's because the capacity actually is not what it was at the beginning. So they try to get the capacity to stay around 80% at least after going 1,000 cycles. So what happened in this particular testing situation was that we saw the slope and we felt it was not going to go and remain at where they wanted it to at the end of 1,000 cycles. As a new battery vendor, nobody wants to, and I don't want to be in production without 100% confidence.

So how do you make it go longer in cycle life? You have to change the electrochemistry a little bit. So you basically have to change the anode composition, the cathode composition or the electrolyte composition a little bit. And we had multiple -- as I mentioned, in batteries, you do many, many, many design and experiments to see which one works. At that time, we had given the lead candidate to the OEM, and they started testing it. Now we had other backup candidates, which we're running. And so when that happened, we looked at some of our backup candidates and another one was performing better because it came later in time.

And those are the ones that we said in the press release now that we send new cells now with that backup candidate, which we perform is performing much better than the previous one. Now since we had a joint development agreement with the customer, we were testing at the same time they are testing. Usually, we don't do that. Usually, we test everything, make sure everything is ready, then give it to them. But since the joint development agreement, they were open to us giving us early-stage samples, so they could help us in how they actually do the accelerated testing because we wouldn't know every customer does accelerated testing slightly differently. So that was the process through which we did that. And now we have shipped the second batch. And my team and I feel confident that this will work, and this actually will go all the way.

But people ask me the question, what if it doesn't because we have not seen it fully yet. We have other backups now that we've also started where we see if this doesn't happen, this will happen, and those are running in the factory now. So it is an iterative process of nailing the electrochemistry to exactly get there. But we've made a lot of progress in many areas. So safety looks really good on that cell. They do some kind of safety test, and they told us our battery is very safe on those tests. Energy density is good, fast charge is good, storage and gassing is good. So we've solved a lot of problems. We're working on solving the cycle life one.

So the issue, just to put it bluntly, is that the rate of degradation, the projected rate of battery degradation after 1,000 cycles was going to be greater than 20%, getting to below 80%.

Right. At a certain rate of charge, not all rates of charge. Some other rates of discharge, we're okay. Some rates of discharge, we're not okay. So it's kind of like one of those things where it has to be perfect, right?

And this is a problem that could get solved by marginal changes in the electrochemistry?

That's right. That's right. That's exactly right. And it takes -- the unfortunate part of it is when you give a human takes 4 months to test it to know if it works or not. And that's why we start a bunch of different recipes and see. So we try to get ahead of the problem a little bit. But ultimately, the customer has to test the one best one we gave and it takes 4 months for them to test. That's the problem with the batteries. That's why the lead time, that's why it's hard to predict the ramp life cycle.

I did want to focus on one thing you said in the beginning, which I thought was interesting, and it's a really good point that because it takes so much work to do what you've done already, it makes -- it creates a greater moat around your business over the long term, if you're successful, which we believe you will be. But does that mean that potentially the existing cell manufacturers, the ATLs, et cetera, can they somehow replicate what you've done? Or are the barriers also similar for them or somewhat similar for them to getting into what you've accomplished now and it's completely changing the manufacturing paradigm itself?

I mean I think somebody that is already in the battery space arguably could get there a little sooner than somebody who's not there at all because some aspects of the battery making are similar. But nobody has commercialized 100% active silicon anode battery in smartphones. So it's not been done. So what we're trying to do is something that's never been done. So what -- and why is that important to mention? It's important to mention because what I found is the electrolyte that you use for 100% silicon anode is so different that we talked to all the lead electrolyte vendors and asked them what kind of electrolyte should we use? And they don't know. Actually, they have never done it. So they tell us maybe this, maybe this, maybe that. And these are people that have been shipping electrolytes for how many ever years in millions and millions of batteries.

So we basically had to invent an electrolyte that actually works well with 100% silicon-anode with an LCO cathode because in an MC cathode, less than 100% silicon anode, or a graphite anode is totally different. Because the electrolyte has to behave a certain way when it touches the cathode and a certain way when it touches the anode. And our cell is under pressure because we stack them and put them under case. So the temperature is different. So the electrolyte behaves completely differently. So that is something that we have to invent to actually do that. And it took us a long time and many, many different trials to find that. So it's not just a question of copying the manufacturing. It's a question of understanding the intricacies of the electrochemistry and the modeling of the electrochemistry and the modeling of the behavior to 100% silicon anodes, the active silicon anodes is a complex thing, and we spent a lot of time.

I think TJ mentioned in one of the calls, we have like, I don't know, 70, 80 PhDs that have been working on this problem for a long time. So it's taken us a lot longer, and it is taking us a lot longer than I would have liked. But I do believe we are building a significant moat in the company. And when we get to full volume manufacturing of this product, it will be a sustainable advantage.

And the electrolyte, is that patent protected?

Yes, of course. Yes. Well, some of it is patent, some of it is trade secrets, right? We don't want to say everything that's out there. So -- and it keeps changing, by the way, because as we keep changing new cathode materials, new anode materials, we are continually tweaking electrolyte. Electrolyte can be used on a certain voltage of the cathode, last time is not the same as the next one, as same as the next one because anodes and cathodes are constantly evolving, too.

Got it. Maybe to focus on Honor for a second. You've already talked a lot about it. But -- and to the extent this relationship with this company is different than potential second, third, fourth relationship, how is it -- is the joint development agreement that you mentioned? And what makes this relationship sort of different than what will come over the next few years, hopefully, with others?

Well, when you start in one of these businesses with a new product in a new market, I mean, a new product for us, the market exists, a new market for us. What I found through my time, 30 years that I've been doing products is important to have what I call a teacher customer. So what does that mean? That means you need to have a customer that is invested in making your technology to production because they see the value. And they want to invest engineering resources. They want to work closely with you weekly, day in and day out, not kind of go up all and panic when things go wrong, but give us feedback and say, okay, this happened, change this, change that. And it's kind of a -- because they're all trying to figure this out on how this works. They're testing how it works in the phone or the different conditions. Like, for example, almost many phones have what is called telemetry, which means they communicate back how the phone is performing.

So they have a lot of information on how it performs in the field and how the battery is getting discharged. Based on that, they tell us, hey, when you put your battery in our phone, here is how the users might end up using it, which we would never know as a battery maker. So that kind of input from them was very important. So we picked one lead customer to do the joint development agreement because we don't have infinite resources. We're trying to build this product. So it's been a long journey, and the engineers and the leadership at Honor has been very supportive. We have weekly calls with their engineers, our engineers, and we made a lot of progress. And even though our first effort that we gave them the most recent effort didn't pass all the cycle life, they were okay to, as mentioned their name saying we're working with them because they believe in our technology, and they continue to work with us.

Now one thing I'll say is that the rest of the market has very similar requirements because they're all in the same market competing with each other. They all use Qualcomm processor or MediaTek processor, they use Micron memories or Samsung memories, they use displays and cameras from same kind of vendors. So if we can help meet the requirements of one teacher customer, well, the rest of them, I truly believe, are much simpler. And this is the same strategy that many people who provide chips into phones use.

And the same thing I did when I was at Micron or Qualcomm, pick one customer, get it to production, understand everything is needed, then quickly ramp into the other one. So there will be differences, how their fast charge is a little bit different and the battery size is a little bit different. But majority of the heavy lifting would have been done by working with one lead customer. That's why it's so important, I've always mentioned getting one out is very important.

Given the joint development that you're doing with Honor, are there any restrictions on what you can sell to other customers? Is there anything that they own in terms of the process or the electrochemistry?

Yes, I can't comment too much on the agreement, but I can tell you this, we -- they want us to be successful and ship to a lot of people. Otherwise, we won't get scale, right? So in their interest that we need to make sure that we are able to scale, right? Every customer agreement is a little bit different.

Okay. And just as a reminder, and Rob, please keep me honest, you're expecting an order at some point in the first half of the year, first quarter, when can we sort of expect a conclusion to this process?

Well, I mean, we gave them the new cells. So they're testing them. And as I said, it takes 4 months to test. So this is during the holidays we gave them. So depending upon how things go, I'd say April, May -- sorry, March, April is when the testing should be complete. And if they feel everything passes, things are really good. We expect them to give us an order to be -- in some phones. If we need to tweak some more, we need to tweak some more, but I hope we don't have to.

Okay.

And hopefully, knocking on wood, scale production at some point in '26, second half.

That's right. And I mean the thing I got to mention is that a lot of times, people ask, how much are you going to ship in '26? What's your volume ramp? I think to me, it's more important to meet the requirements and get into production with the customer. I think that's the most important thing. And how much we ship will really depend upon, one, of course, timing. The second one is -- and I mentioned this many times before, a new customer -- a new supplier like us, customers will typically put us in a model, test is out in the market, see how it is, get to the next model, get the next model. This is what happened in many times in my career. So the important thing is to get the first customer qualified and launch in a model, then be ready as it ramps into the years that we have the right capacity. So the first one is the most important, and they will always start small.

Just to maybe focus a little bit more on smartphones. You mentioned you have another lead potential customer as well, # 2. I'm assuming this is one of the big smartphone OEMs, a large one. What's -- any update on the incremental progress you've made with that potential customer?

Yes, very similar, we've given them cells. They've given us feedback. And again, we are waiting to give them these cells where we fix the cycle. We mentioned it to them that, hey, we're going to give you new ones and the cycle life fix. The first ones we did, don't have all the cycle life and they're okay with it. And we told them we'll come a little bit behind because I actually do want to give them things that we feel are really good with the first customer, right? So we will get them these cells, too. We did get -- we are working on getting requirements for the cell size because their cell size is a little different from the other one.

So our factories have to adapt to that. So we're now in the middle of that discussion and exactly what cell size should we make for the second one, what cell size for the first one. So that conversation is going. But things are progressing. Again, it will all depend upon how the testing and qualification of these first cells goes, these new cells we're shipping go.

And in terms of your relationships and testing with broader smartphone OEMs, I remember -- this is last year, you made -- you signed an MOU with a company called Elentec, which based on our work, they're a pack manufacturer for companies like Samsung. Is it fair to say that many of the other large OEMs and maybe the non-Chinese, maybe some Koreans, you're also working with in terms of establishing relationships and potentially after this testing is done, shipping your cells to other OEMs.

Yes, absolutely. We have interest from all the top OEMs for cells, and we will be shipping to all the ones you mentioned, right? We have interest from all of them. Look, I mean, when we -- everyone in the cell phone market knows that ultimately, the battery is the bottleneck. And it's the #1 reason people actually change their phones, battery then camera, right? So -- and with AI use cases, the battery demand is only going higher and higher. And the interest for our cells is in all of them, and we've got every one of them asking for samples, and we are shipping them as and when we can make them. But again, I'm -- the concept of having a teacher customer is you work with them and get it all ready.

So the next ones who get will have a much better experience in the sense that much swifter experience because the first one, we are working -- it's kind of like you have 2 cooks in the kitchen. But next time, you bring the dish out, right? So that's kind of what's gating the rest of them. But we will -- now that we have these new cells, we will get them out. But we are able -- but one thing I'll tell you, this thing I mentioned about going after smartphones being the toughest market. And sometimes people ask me, Raj, why would you go after the toughest market, I mean, as a small company.

But I'll tell you why it's paying off because in the AR/VR market, in some of the industrial handheld markets, other markets, the requirements are not nearly as high. And so we are able to now ship these other cells that I talked of that these cells that we said we're working on a cycle life improvement to that market already because the cycle life and the rate of discharge is not nearly as high what they need there. And we hope to see some products next year with these cells in those spaces while the cell phone qualifications continue to go. So I think the strategy seems to have -- is working. It's just been harder to really go out. It's like trying to run the marathon and then, okay, maybe I can run a 10-K. So...

That's a great segue into my next question, which is CES, which is in a few weeks. You've talked about maybe making some announcements there, some exciting stuff in smart glasses. Any preview you can give us as to what's on deck for that show?

Well, I mean, what we found is that the smart glass market is one of those markets where the ecosystem has developed quite a bit in the sense that Qualcomm processors, there's another company called BES, they have processors and NXP and a lot of people are starting to make processors. And a lot of people have made these kind of AI use cases with microphones and cameras. And that whole camera and microphone ecosystem has been really developed quite a bit because of smartphones. And if you look at smartphones, we worked hard on making these cameras accessible to everyone, and we worked hard to make on this, microphones access to everyone, the speakers accessible to everyone. Everyone in the sense every OEM that wants to make a consumer electronic device. It's kind of amazing, actually. The camera and the smartphone is so small, but now you can take it and put it in your glass.

So I mean, there's a lot of technology that has been made popular by smartphones that now is quickly moving into the other markets. You would never had that if you had to take a big digital camera lens and put it in the eyeglasses, it never worked. So similar to that, going -- us making a battery for the smartphones is helping us put that battery in eyeglass. There will be a lot of customers, I feel. The winners and losers in this space is not like defined because emerging market. And our goal is to be able to make our battery accessible to many people that can quickly make demonstrations of that. In this market, you need to make demonstrations with OEMs, demonstrations with ODMs because ODMs are people who make the product that the OEMs will brand.

When you think of ODMs, you think of people like, I don't know, Foxconn or something like that, right? So we want to work with ODMs. We want to work with OEMs, and we wanted to show some demonstrations of the technology. Ultimately, we want to make this accessible so that quickly it can go into products once it is all put together properly, right? Not take as long as it takes on smartphones. So that's our goal. And I'm hoping that -- I've seen a few early prototypes of what the glasses look like with our cell, and they're very exciting. And I've seen the performance metrics of what our cell can do, and they're really good. So I'm hoping to see some of those -- a lot of engineers working through holidays, let me put it that way to make sure that we have some demos at CES.

Cool. So some interesting -- and we should expect products in the wild next year with your cells in them...

That is my hope that these demonstrations we show will actually go to full volume production. Now again, how big is the volume? We don't know, but it's important to get them out there so people can actually see them, right?

Yes. And I would expect that these are brands that we all know. I mean, I'll just say what we've written, we've written that we think that Meta and Snap are customers. You don't have to comment, but those are 2 very large companies who are very much interested in this space. But that's an expectation of yours that these are big...

I mean we're sampling it to everyone. And again, which customer launches when it's hard to tell, but we are sampling it to many customers and some show publicly, some privately, but we're hoping to get there, yes.

Maybe to focus on defense a little bit. It's something we've talked about, something we've written about. We've -- speaking of brand names, we've written also that we think that you may be working with Anduril, which is a very exciting emerging defense company. Can you just talk about a little bit what you're working on there? And you have this Korea facility that you bought, really great acquisition in terms of price capabilities. Is it just the Korean non-silicon cell that you're selling? Or you're actually interested in other chemistries as well, the silicon chemistries?

Yes. So firstly, this -- we haven't talked enough about our Korean factory. It's a really, really fantastic facility, and we were lucky that when SolarEdge was trying to exit that, I was able to purchase the rest of it. So we have over 300 square feet factory there, and we will continue to invest in that, and we'll continue to grow that footprint. We've had some very good success with the Korean military itself. And one of the areas is actually drones. We have a very good drone battery that now in some products that companies -- that our Korean factory is sampling too and will be in production next year. We have got a lot of interest for that battery in many other customers now in the U.S. And we are increasing the energy density of that by adding more silicon to it, so it gets to the next level.

There, the trick is gravimetric energy density, not volumetric in the sense that how much energy does it have per kilogram. We have some very good technology here. That team has been doing it for a long time. We haven't really talked enough about it, but you'll see a lot of cells come from that. We've got multiple orders for samples from U.S. defense companies, as you mentioned. We've given some samples, and now we're getting repeat orders for that. We expect that business to grow steadily this year, this coming year and the year after, and we'll be adding more CapEx to that facility, hopefully, in '26. That's what I'm planning to grow that.

I think that will be -- and again, because we understand how to work with 100% silicon, we were able to use that know-how and my R&D team was able to help the Korea R&D team to boost up the energy density of that, which translated into a much higher rate of discharge because they were making cells that actually -- I mean, we're talking about 0.7c. We're talking about multiple orders of magnitude discharge when these things go into like underwater vehicles and drones and so on because there, you are spinning motors, right, and driving things. So the discharge rate is much higher than running a 5G modem. But we have that capability in that company. We have the capability how to run high rate cells, which we are shipping in high volume into these defense markets. But now we're able to add our silicon know-how on top of that to actually get them to market.

So very exciting stuff. We are hoping we'll see that in '26, '27 and beyond. Again, the qualification takes some time to get to full volume production, just like any other market. But there's a lot of pull from some of this defense customer to accelerate qualification because main competition there is Chinese batteries or people who have factories in China that are doing contract manufacturing, which the defense doesn't really want. So that's helping us quite a bit.

So it's not the 100% silicon yet. It's more what you're doing is you're doping some of it with like 5%, 6%, 7%, 8% silicon, taking your learnings from working with 100% silicon and sort of enhancing the energy density and getting into drones, subsea vehicles, you mentioned handhelds.

That's right. Well, I mean the thing you got to remember is that you can probably dope even more than a small percentage because what happens if you dope more it swells more. But if you're putting in a drone, there's enough space that people actually put some pressure to hold the cell. If it swells 5%, 10%, it's not the end of the world there. But in a phone, you swell 5%, blows the back off. So which is the important thing you got to remember. I mean, it blows in the sense it pushes out, doesn't blow up. But that's why it's important that in those markets, some swelling is okay, so you can afford to add more silicon there. That's an important distinction.

And so we'll see, to your point, a steady growth in that in '26, '27 and beyond.

Yes.

And I'm curious, are you -- you've mentioned interest on behalf of the U.S. government, but you also getting interest from allied countries, Europe and the rest of the world.

Yes. Yes, we are. Yes.

Maybe to focus on other emerging categories, something we've written about over the last few years is electric vehicles, laptops, et cetera. How should we think about those other markets emerging over time?

The laptops are actually very similar to smartphones in the sense that if you really think about it, once you make a smartphone battery, it's multiple ones of those inside a laptop. That's one way to think about it. And I think traditionally, it hasn't really grown a lot. The laptop market is in the $200 million, $250 million, $300 million range. But the whole AI laptop is becoming a big thing now. And I think there, people are actually really interested in that growth now. So I think once we get a smartphone qualification, we will go into that. We do get interest from some of the laptop customers for samples and so on. We are working with them. But again, my goal is not to go after many markets at once, but actually qualify one. And then we have the technology, so which is kind of what we did.

We did one, we got the cell phone stuff in a reasonable shape. We went after AR market. And then once we make the cell phone cell work, then we'll go into the laptop market. But we are talking to the customers, and we're understanding the requirements. We're understanding what it takes. On EVs, we've always mentioned we are not making cells for the EV market because that needs a huge gigafactory. There, it's more of a licensing play. We are -- there's a couple of advantage our battery brings, which is the ability to charge fast and not get too hot. And people feel there's a good need for that.

And we are continuing to figure out how to get that to a stage where we can license that technology to somebody. But that's -- it moves slowly. That market takes a long time. But there are other markets, like I said, like other IoT markets that are actually reasonably big that people want these cells. So we are looking at those markets as we get the cell phone stuff qualified. Again, right now, the focus is on AR/VR, cell phones, drones and defense, right? That's the 3 markets we're really focused on.

Right. Drones and defense in Korea?

In Korea factory, right.

Excuse me. And then 100% silicon in Malaysia?

That's right. But I did mention in the call last time that we are now working on seeing if we can build a small R&D line in Korea to actually build 100% silicon batteries also because I want to get 2 factories know that know-how so that we have it in both the places. So we'll continue to work on that next year.

Interesting. Can we focus on operations for a minute? So it was a journey. I remember it, you called it the journey to scale getting the agility line up with the high-volume manufacturing line up. So how should we think about progress on yields and how you feel about the operations in Malaysia right now?

Well, I mean, right now, all the focus has been making samples for different markets, not so much on getting yields in high-volume production, right? Because ultimately, a lot of the cells we make are all going to R&D to get these spins done to actually make the right cells. And as I mentioned, we made 2 AR/VR cell -- glasses cells. We made a couple of different sizes of smartphone cells. We made another IoT cell. We finished our defense contract that we had. So the factory has been spread pretty thin on making 5 different sizes. So we have -- and they all are in different sampling stages now.

So next year is the year, we'll need to focus more on getting -- just 1 or 2 products where the highest volume is to the right levels. So this year, the factory has been running more in the customer engineering sample mode. And this is not the time to really focus so much on yields and units and so on because you're changing the factory all the time to make a new cell. So once we stabilize that, we'll focus on that.

Is it -- should we still think about a line -- a capacity per line about the 9.5 million for cell phone batteries and then double that for the smart glass cells?

Yes, that's the nameplate capacity. That's how fast the machine can run. Now we're not running it that fast, clearly because we don't need the volume, and we are still working on sampling. We're changing it all the time. But when we get to full volume, that's where we'll be.

Okay. Maybe to focus a little bit on materials. We've asked about this. We kind of touched on it with electrolyte, but there are several vendors who are trying to develop the silicon to provide to companies like yours and others who are doping it. How should we think about any supply constraints for silicon across the world? Are there any?

Well, we're not buying a lot of volume, right? I mean right now, right now, there's not that much of a concern right now. We have the supply we need. And like I said, there's multiple vendors that provide that. And it's -- all of them want to work with us because we use 100% of it. So that's the other interesting thing. We don't buy a small percentage to dope it. We buy 100% of it. So -- and also, they kind of believe that the future will be for people who can make this work. So they work with us quite a bit.

And we also give them feedback on when you use this much, when you quote it on this and when you press it like this, this is what happens, here's what you should change. So it's a good collaborative process with the vendors. And there are 2 or 3 different silicon anode vendors. There's multiple cathode vendors. So we don't have any supply constraints right now, but we do try to be multisource so that when there is a crunch, hopefully, we'll have enough suppliers.

That was a nice way of me asking because there are a couple of companies who are American that say they have figured out to make really good silicon, but is there any differentiation between what you're seeing here or coming from other countries from private companies there?

I mean they're all different. They're all different in what they do, right? They're all different in cycle life versus performance under pressure versus how easy it is to quote them, to cut them, how expensive they are. They're all a little bit different and what electrolyte we use with them. So we have to modify things a little bit to make it work with them, and they all have their advantages and disadvantages. So some are more suited for some applications, some are more suited to other applications because, for example, rate of discharge, rate of charge is a big factor. So you kind of have to optimize that. Again, we don't just put the silicon powder as is. We mix it with some other things that are proprietary to us to make sure those can actually work. So they're all a little bit different.

Are there any material constraints you're seeing because of just the state of the world, U.S.-China relations, et cetera?

Right now, no, thankfully.

And you mentioned that you've patented some trade secrets on your electrolyte solution. Are you developing that internally? Or do you use some sort of contract manufacturing scheme to make the electrolyte?

No. We create the recipe that we want, then we ask with an electrolyte vendor to make it to us. So again, this came from our India team, by the way. This is another advantage of having this phenomenal R&D center in India. They came up with electrolyte that actually works with 100% silicon anode now. We have some very strong people there, and they can do pouch cells and they came up with this. So we have R&D there. We have R&D in Korea. We have R&D in Penang, and we have R&D in Fremont. So it's a joint R&D effort. Yes, we come up with it and we tell the mixture and other -- I mean we can make in small batches. We can buy all the chemicals and make them. But ultimately, the higher volume, we need to have a supplier and make them.

A couple of months ago, you raised money and told us that you're thinking about making an acquisition, clearly haven't made it yet. So any update there? And how should we think about how you're thinking about what you need to see from any acquisition target?

Yes. So that work is ongoing. We are looking at some potential acquisitions as you put it. My view on that is in smartphones, people have a lot of battery know-how. So we can sell them a cell and they can go to production. In other markets, the battery know-how is not so much there. So you really have to provide more of a solution. For example, you have to put the BMS on top of that. You have to put a package on top of that. You have to put some circuits around that. You have to have supply chain distributors around that. You have to have support systems and engineers and so on. So to move -- to grow the business, one of the areas that you need to have is this ability to go to market in different markets quickly with the technology we have. And that's an area that potentially could be of interest to us to accelerate the growth.

Now there is other interesting technologies that may make our manufacturing go faster. There could be technologies that could have chemistries that are better, improve our chemistry on top of that. But I'm looking more for companies -- we are looking more for companies that have a good revenue growth and also good EBITDA to get the financials lead better rather than just more R&D. We have enough R&D right now unless we find something really compelling. That's probably one way to think about it.

So when you announced this, it sounded like there was something that was sort of kind of imminent. Is that -- was that the wrong way to interpret the news? Or should we expect something in the first half?

No, we were working with multiple ones, and we're still working -- I mean these things take time. You got to do the due diligence, you got to get to that. So we are still continuing to evaluate the process on multiple ones at the same time. And again, it will be thoughtful. It will be something that moves the company forward, and we'll be, as Ryan likes to say, careful stewards of the capital. I like the expression he uses, responsible stewards of the capital, but it's nice to be able to have the company capitalized so we can actually look for these opportunities.

This is not the last call, but 2 calls ago, I remember specifically that your -- the discussion around average selling prices was much more positive than I remember in the past. And so did we interpret your tone the right way? And what are you seeing and hearing from companies that are interested in your cells like in terms of a price range for both smartphones and for smart glasses, AR/VR?

Yes, clearly, I think people are now realizing that in some of the markets, the battery is the bottleneck and the battery is still a small percentage of the BOM. And if the battery can improve the performance of the product tremendously, they don't mind paying more. I mean, like I said, the #1 reason many studies show that people change their phone is because of the battery. So if you could improve that $600 bill of material in a phone, the battery is typically between $10 and $15. So it's still a pretty small percentage. So for the #1 reason to change your phone. So I think there is still a lot of room there. And I think the trick is to provide higher energy density that truly differentiates the product.

When you do that, I think the ASPs will continue to be there. And the other thing I mentioned last couple of calls ago is the size of the battery is increasing in phones. When the size of the -- capacity of the battery is going -- it's gone from 5,000 to 8,000. And I mean now customers are talking about 9,000, 10,000 in time milliamp-hours. So typically, the battery prices go by dollars per milliamp-hour. So let's just say, round numbers, $2 per milliamp-hour. Now you're looking at a $20 battery at 10,000 milliamp-hours and so on. So that's kind of where I was coming from was the ASPs are proportional to the capacity of the battery and the differentiation you provide because of the higher energy density or capacity in the same volume.

And I forgot to ask this question earlier, so I'll ask it's a good segue into next one. How are you seeing your battery -- I know there are multiple metrics, particularly in smartphones where you have to measure performance. How -- if your cell is successful, right, you finally get that order and you start shipping, how will that compare to what is out there right now in the marketplace in terms of performance across the board?

I mean the main one will be the ability to provide higher energy density, higher capacity in the same volume and also charge really fast, right? That's really the metrics. Of course, with while meeting cycle, while meeting swelling, while meeting performance. And our batteries end-of-life will and should sell -- should swell a lot less because of the constraints we put in and should be much safer. That's -- those are probably the safety, slow swelling end-of-cycle life, higher energy density is how we typically qualify our batteries as -- differentiate our batteries.

Maybe last one here, Raj. What do you think investors are maybe misunderstanding about the company? I mean you mentioned yourself it's taking maybe a little bit longer than you were expecting, which is typical, I think, for start-ups, which is kind of essentially what you are. But what do you think investors are missing? If you had to boil down to 1 or 2 or 3 bullet points?

I mean I think the main thing is investors are missing -- well not missing is what I would say. They're rightfully expecting us to be in production by now because I've been here 3 years, and the company promised much more before I came. And it's been a long journey. I mean it's been a long journey, and I really appreciate their patience. But as I mentioned in this call, why it is so hard and why it is so hard and why when we do finally get there, it is going to be a differentiated business. So patience. But it's tough and I can understand a lot of people have put their money in and they would like to see the growth in the stock price, and I understand that. I think probably -- investors are probably -- this is not like -- I guess one investor I was talking to after I explained the situation said, aha, so this is not like a biotech pharmaceutical company in the sense that, okay, you got the drug, now it's done. You fail 1,000 cycles. Now your FDA approval is done. It's kind of not like that.

It's an iterative process and a joint collaboration with a customer that takes time to build. And once you get there, you now made the first step and then more and more and more, it kind of goes like that. So I think it's -- that's the part that probably some investors are maybe missing. And the second one is people who lived in smartphones understand what it takes to bring new technology into smartphones. I've lived 30 years of it. I remember the first time we put a camera in a smartphone. I remember the first time we put Bluetooth in a smartphone and a GPS in a smartphone and fingerprint sensor a smartphone, Wi-Fi in a smartphone. And they all were huge lifts to put any new technology. And I still remember the first camera was terrible, and now we don't even think about it. And I mean, we put Netflix playing in a smartphone, and we put people using biometric sensors and using credit cards.

So differentiated technology has come into smartphones over the last 20 years, and I've been there. And silicon batteries is one more of them. But it takes time. It takes time. And once it's there, you kind of take it for granted and you go about and ask for more. But I think that's probably the one part investors are missing. And the other one, I think, is there also -- I think we will do a better job of showing how much excitement there is on our defense cells from the Korea factory and how much more we can grow that. That's a nice market that we actually are at the tip of, particularly with the factory that we own. And unlike a lot of other competitions, we own our own factories, so which is a huge advantage, and we don't make them in China. So I think some people haven't quite seen that aspect of that. I think those are probably the 2 big ones. And there's -- I think -- I don't know, if we can go on and on, but those are probably the 2 big ones I'd say.

Got it. Well, Raj and Rob, happy holidays. Good luck at CES, and we think it's going to be an amazing 2026 for Enovix. So we look forward to it. And we'll talk to you soon. Thanks so much for your time.

Thank you, Josh. Appreciate it. My pleasure.

Thank you for standing by, and welcome to Enovix Corporation Third Quarter 2025 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, Robert Leahy, Head of Investor Relations. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to Enovix Corporation's Third Quarter 2025 Financial Results Conference Call. With me today are President and Chief Executive Officer, Dr. Raj Talluri; and Chief Financial Officer, Ryan Benton. Raj and Ryan will provide remarks followed by Q&A.

Before we begin, please take note that today's call contains forward-looking statements that are subject to risks and uncertainties. These statements are based on current expectations and may differ materially from actual future results due to various factors. For a discussion of these risks, please refer to the disclosures in today's press release and our filings with the Securities and Exchange Commission. You can also find these materials on our website at ir.enovix.com.

All statements made on this call are as of today, November 5, 2025, and we undertake no obligation to update them, except as required by law. Additionally, during the call, we may reference non-GAAP financial measures. You can find a reconciliation to the most directly comparable GAAP measures in the materials posted on our Investor Relations site.

With that, I'll turn the call over to Raj.

Good afternoon, everyone, and thank you for joining us. Enovix is expanding the limits of battery capabilities and transforming how the battery industry will evolve over the coming years with a silicon battery. During this quarter, our team made significant advancements in developing a silicon battery while strengthening our key partnership alliances. Today, I'll highlight our progress in Q3 and then provide updates on our initiatives in smartphones, smart eyewear, defense and strategic initiatives before turning it over to Ryan for a financial update.

We delivered strong execution and financial progress in Q3. Revenue grew 85% year-over-year to $8 million. We achieved a non-GAAP gross profit of $1.7 million or 21% margin compared to a loss in the prior year. We also secured long-term funding, which is expected to finance Fab2 and enable our path to positive cash flow.

Completing a shareholder-friendly warrant dividend and issuing a new convertible notes due in 2030 brings total cash and marketable securities to $648 million at the end of the quarter and allows us to execute from a position of strength. Our AI-1 smartphone battery was validated by an independent testing firm, Polaris Labs, as the highest energy density battery reported for a smartphone battery in the industry and in addition, having leading fast charge capabilities.

Our lead smartphone program with Honor, a top 8 mobile OEM has entered the final validation phase ahead of planned 2026 smartphone launch. Honor has been an outstanding partner, and we appreciate their cooperation as we work tirelessly to bring this breakthrough technology to the mobile phone industry. Honor's feedback on our product development and inputs into mobile battery needs has been instrumental in the execution of our road map as we advance towards commercialization. Besides Honor, our second smartphone OEM development program is also accelerating with this additional customer also now in qualification. And we are continuing to sample to other top mobile OEMs. Our mobile partnerships offer us key market insights and reflect the strong commercial relationships we have today in this market.

In smart eyewear, we delivered over 1,000 battery packs to our lead customer under our supply agreement. These packs are now undergoing customer qualification. Furthermore, we have delivered samples to 9 other unique OEMs and ODMs, and we expect to have some of them launch products using our batteries in 2026.

On the manufacturing front, we made significant progress in yield, throughput and cost optimization. We achieved yield improvements in Fab2 in Malaysia across all production zones, notably in Zone 1 laser dicing. We optimized our battery formation process in Zone 4 to increase the throughput materially. We believe Zone 4 capability now exceeds the volume requirements for the second and potentially the third high-volume lines, significantly reducing future CapEx requirements.

Shipments from our Korean factory accounted for the majority of our year-to-date revenue, with the largest contributions coming from defense and industrial customers, where we continue to benefit from strong demand. We completed the integration of our Q2 acquisition of SolarEdge assets, adding cell capacity, incremental coating equipment and room for future expansion. Additionally, leveraging the capabilities of this team, we began building our first cell manufacturing capability for our 100% active silicon anode technology in Korea also. This will serve as a new product introduction line, our NPI line.

Finally, I want to welcome Dan McCranie to our Board of Directors and Srikanth Kethu as Head of Enovix India, expanding our leadership team as we scale globally. Dan is a high-impact operator, sales executive and a broad leader with deep experience scaling complex technology businesses. His track record at onsemi and other global semiconductor companies adds immediate strength to our Board as we expand commercialization and manufacturing in 2026 and beyond. Our new Head of India, Srikanth, will strengthen our world-class R&D center in Hyderabad, which accelerates our R&D efforts and help ensure the success of scaling our Malaysia facility.

Now let's talk about smartphones. Since I started in 2023, I focused the company on smartphones as the most financially attractive market to our batteries. After visiting key OEMs in April 2023 and getting an understanding of the key product requirements from them, we started developing our smartphone batteries to meet these stringent performance targets. As we developed our technology to meet these requirements, we entered into a development agreement with Honor as a lead customer in September 2024. Over the last year, we made significant progress both in our product development and meeting their product qualification milestones. We passed the vast majority of Honor's qualification requirements and in several cases, exceeded them.

In order to consistently achieve 1,000 charge discharge cycle with their components, we have agreed to a design iteration, which is already underway. We're on track to ship these samples in Q4, enabling Honor to complete full life cycle testing. This additional cycle is part of a thoughtful, collaborative qualification process that's typical when introducing breakthrough battery technology into flagship smartphones. This rigorous collaborative process of building a leading-edge smartphone battery with Honor, we believe, enables us to launch products with the rest of the smartphone industry in a relatively seamless fashion.

Our second smartphone customer is now validating the AI-1 performance. The next milestone for this customer will be to provide us with the precise mechanical dimensions of battery we need to supply and move to a qualification and an expected commercial launch in 2026. Additional smartphone customers have similar requirements to our lead customer, and we expect their qualification process to go much faster. What's exciting about AI-1 is that it's not just a smartphone battery. It's a platform. Providing this level of performance can open the doors to a much wider set of markets.

We started in smartphones, a $12 billion opportunity where our 900 watt hour per liter performance gives us a clear edge for on-device AI. From there, the same technology moves naturally into smart eyewear, AR/VR and IoT, about an $8 billion market today, where success depends on getting high energy into the smallest possible space.

In defense, roughly a $3 billion market opportunity, customers are choosing Enovix for a rugged, safe, mission-ready designs and diversified supply chain with manufacturing in Korea and Malaysia. And longer term, our silicon anode architecture scales across EVs and computing markets that should exceed $500 billion by 2040.

Now let's turn to smart eyewear specifically, which is proving to be a faster-moving adjacent market than we previously expected. We currently have 2 cell designs for this market as we see 2 distinct product classes emerging, displayless smart eyewear designed for lightweight, voice-driven experiences and display-enabled AR eyewear, which carries much higher compute and battery demands. We expect this to be a broad market with many different consumer electronics and fashion brands launching products in 2026.

The AI-1 platform enables significantly longer run time in this space-constrained application. We now have sampled the AI-1 platform to 10 unique smartware OEMs and ODMs, and we expect to showcase the first end product with an OEM publicly in CES 2026 in January.

Turning to defense. Momentum continues to build this quarter across multiple geographies. In Korea, we combined seasoned manufacturing capabilities for conventional lithium-ion batteries with our expertise in silicon anodes. Our leading products now include silicon doped anodes and the customer response has been encouraging. Year-to-date, our Korea facility has shipped roughly $20 million of products, the majority of which went to domestic defense and industrial customers, including two of the major three contractors in the Korean military.

With customers outside Korea, we are seeing strong progress in both aerial and subsea drone markets. These customers are increasingly diversifying their supply chains and our manufacturing footprint has opened doors with them. Based on customer feedback, our products are meeting the demanding requirements of this segment, including high pressure tolerance, long cycle life, large capacity formats of up to 60 amp hours that operate reliably in low temperature environments. We have a robust pipeline of opportunities in this segment growing to over $80 million globally.

Before I turn it over to Ryan for the financials, I want to provide an update on the M&A front. Our mission remains unchanged, commercializing our 100% active silicon anode architecture for space-constrained high-volume devices. Our conviction drove us to strengthen our balance sheet, giving us optionality to accelerate growth organically and inorganically through strategic M&A. This quarter, we began evaluating several opportunities that could advance commercialization through vertical integration and accelerating entry into complementary markets. A select few that meet our strategic financial criteria are under consideration, and our funnel of opportunities continues to grow. While we continue to evaluate opportunities that fit our strategy and financial filters, we have not entered into any agreements at this time, and there is no certainty that any such opportunities will result in completed transactions.

Now I'll turn it over to Ryan to give a financial update.

Thanks, Raj, and good afternoon, everyone.

Before I get into the financial results, I want to highlight the capital markets activity we executed during the third quarter. On the left side of the slide, you can see the summary of our warrant dividend program. We completed the program at the end of August with all warrants either exercised or expired. Roughly 26.5 million warrants were exercised, generating about $224 million in proceeds, net of fees and expenses. During the third quarter, we repurchased approximately $58 million of common stock. The net of these 2 programs resulted in $166 million in net liquidity, strengthening our cash position, enabling the funding of our Fab2 build-out and other strategic initiatives.

On the right side, we show the convertible notes offering completed in September. We issued $360 million of 4.75% notes due in 2030, which after purchase discounts and capped call costs added about $303 million in net liquidity. The notes convert at $11.21 per share with a redemption trigger at approximately $14.57 per share.

The capped call overlay has the ability to substantially offset potential dilution. As shown on the slide, we structured the cap call using multiple tranches, which provides several interim payoff opportunities during the term rather than the typical all or nothing settlement at maturity. If Enovix's stock price meets or exceeds one of these price thresholds, there is a substantial payout. If we meet all of the targets specified, the company could receive cash proceeds of over $200 million. We believe that this structure lets us capture value as we execute while managing dilution responsibly over time.

The net result of all this is that we closed the quarter with $648 million in cash, cash equivalents and marketable securities. The goal wasn't just to raise capital. It was to remove what we perceived as a financing overhang to give Raj and the team the confidence to execute upon our strategy without distraction and to give our customers comfort in our financial strength. I believe to a large extent, we have achieved these goals, and it's been impactful. We now have the resources we expect will allow us to fund Fab2 to pursue select strategic opportunities and to operate with confidence. It's exactly where a company at our stage should be.

Now turning to the Q3 results. This was another strong quarter of execution for Enovix. Revenue came in at $8 million, up 85% year-over-year as we continue to deliver solid growth across defense and IoT programs while simultaneously advancing sampling activities with our lead smartphone and smart eyewear customers. Non-GAAP gross profit was $1.7 million, representing a 21% gross margin compared to a loss in the same period last year. The improvements reflect higher sales, favorable product mix and continued cost discipline. Non-GAAP operating expenses were $31.5 million, up year-on-year. The majority of the increase was driven by higher depreciation and amortization with modest increases in R&D and manufacturing readiness investments. As a result, non-GAAP loss from operations came in at $29.8 million versus $26.9 million in the same period last year.

Adjusted EBITDA, however, which excludes depreciation and amortization, improved by $2.3 million, a 10% improvement year-over-year. Non-GAAP net loss per share attributable to Enovix was $0.14, an improvement of $0.02 from Q3 2024. Overall, we delivered against our plan and continued building the foundation for scale and profitable growth.

You just saw the detailed walk-through of our Q3 results, so I'll focus here on guidance for Q4 and some context. For the fourth quarter, we expect revenue between $9.5 million and $10.5 million, up 25% sequentially at the midpoint. We expect non-GAAP loss from operations between $30 million and $33 million, reflecting continued investment in manufacturing readiness and product launch preparation as we scale towards volume production. For non-GAAP net loss per share attributable to Enovix, which includes the impact of interest expense on the new convertible notes, we expect between $0.16 and $0.20.

And finally, we've added a new metric for guidance. We are forecasting capital expenditures, which for the fourth quarter, we expect to be between $9 million and $12 million, primarily tied to Fab2 equipment as well as the build-out of the NPI production line in South Korea. Note, our guidance does not include mass production for any commercial smartphone shipments to Honor in Q4 2025. Importantly, however, we believe that the customer commitment and launch plans remain firmly intact. Our second smartphone OEM program is also progressing well in parallel.

While we're not giving 2026 guidance today, investors should expect a more back-weighted revenue profile next year following end customer qualification and product launches. With $648 million in cash, we believe we are well positioned to continue executing on our plan, and we remain prepared to pursue strategic opportunities where they meet both our strategic and financial criteria.

And with that, operator, we're ready for questions.

We will now begin the Q&A session. Please note that this call is being recorded. Before we go to the live questions, we're going to read two of the most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is, do you have just 1 or 2 smartphone battery customers at this point? And do you have enough capacity to satisfy their needs?

Thank you for the question, and thank you all for listening. We have agreements with 2 smartphone OEMs, and both are in different stages of qualification. And of course, we've also sampled 7 of the 8 top smartphone OEMs over the past period from -- with our batteries. And we -- and we are getting positive feedback from all of them on how they feel about the batteries, different safety tests they're performing.

On the capacity front, we -- as I mentioned, we have a line that when fully facilitized, can produce up to 9 million batteries a year next year. And we also started making some -- last call, I mentioned that we started making some initial payments towards augmenting the Line 2 and so on. So we absolutely do have the capacity to support both the customers as they ramp. And 2026 will be a breakout year, and we'll continue to add capacity to support all our customer demand in '27 and so on.

Thank you. And the second question is, will Enovix pursue rapidly evolving drone manufacturers requiring improved batteries?

Yes. Thank you for that question. So this is a market that, as you mentioned, is rapidly evolving. We are getting a lot of interest from many drone OEMs, both in aerial and subsea, like 2 class of drones that we are finding. And we have been shipping batteries, high-performance, high rate batteries from our Korea facility to many defense customers in South Korea. We are now able to satisfy and sample those to other drone manufacturers that are asking us for those batteries now. And in fact, we just got another purchase order today from a high-tech defense manufacturer here in the U.S. to provide more samples for evaluation of their programs. So yes, this is a fast-moving market, and we're getting a lot of interest for our already existing commercial batteries that we're making in Korea.

Okay. And we will now go to the queue. [Operator Instructions] Our first question comes from Mark Shooter from William Blair.

Congrats on naming Honor as your lead smartphone customer. This is a big name in China. Unfortunately, though, it looks like they want 1,000 cycles now. Is this correct? And how much of this was a surprise to the team? And what's required in the design front to achieve that?

Yes, the requirement has always been 1,000 cycles. As I mentioned in the last earnings call, we have -- it's a development program that we're working together with them, and we gave them samples in July, and we were doing cycle life testing while they were doing cycle life testing on the same batteries we provided. And as we went along in this testing process, we realized that we need to make one more small design change to get to the full performance that they want. And we validated that change now internally, and we have confidence that, that change we made will actually go to the 1,000 cycles requirement.

We're now making batteries to that specification, and we expect to get those batteries and send them out to Honor this quarter, and they will start the testing again. And as you know, batteries are one of those things where when you give a new design iteration, we got to start the cycle life testing again, and it takes 3 to 4 months to do it because of just the nature of the process. We expect that to get done in 1Q next year, and then we expect to get the commercialization after that.

But we're very happy with the progress we've made. It's been very collaborative, and they have allowed us to mention their name, giving us -- with all the progress they have seen and what we have made and how good the batteries are. So I'm very, very confident with what the team has done, and it's going well, and we expect the batteries -- and I'm confident the batteries we shipped in 4Q will meet all the requirements.

That's great. I appreciate that. You touched on that time line. I'm wondering if you could add any more color there? Should -- you mentioned 3 to 4 months. Should we be expecting that first regional testing PO to happen in Q1 with a follow-up maybe in Q2? I mean how are you guys looking at this now?

Yes. I mean, look, we don't want to launch anything -- they don't want to launch anything together. We want to launch a battery that's fully tested, solid, safe, meets all the requirements because the first battery to production, and we want to make sure we do everything right. So as I mentioned, it takes 3 to 4 months to validate it after we shipped it. And then they'll need to put it in their phone and then the next model will intersect. So we should expect something in the first half of next year if everything goes well.

And our next question will come from George Gianarikas from Canaccord.

I'd like to just continue on the path of the questions around Honor. Again, congratulations. And just trying to understand the cadence of production and orders that we should be expecting. You mentioned the first quarter, we should get more detail around an order and then maybe ramping production in the second. Just your level of confidence that this is sort of the last design change before achieving order status and then production.

Yes. Look, I'm very confident. My team is very good. They've done tremendous work, and this has been a close cooperation with the customer. So we are seeing everything and they're seeing everything. They are giving us solid feedback. Again, we are trying to launch everyone should understand 100% active silicon anode battery into a smartphone, which has never been done before with a brand-new factory. So we made tremendous progress. That's why I put the time line out there. So for all the -- all our investors and for you guys to get a feel for what -- how complex this is and how much progress we have made. I'm very confident.

But as I always mentioned, we don't want to launch anything that's not 100% solid, and we work closely with our customers. And if all the testing goes well, I think it will be fantastic to launch next year. And again, there's another customer right behind that's also testing it, the same design iterations that we're making. That customer is also getting it. We got feedback from them that this is really benchmark in energy density that they're seeing. So there's a lot of interest, but we want to make sure it's solid when it goes to production. And as Ryan mentioned, we have a strong balance sheet, and we are well capitalized. So we have what -- we have the resources we need. We have a factory that's running well to get it to full production at the right time next year.

And maybe as a follow-up to switch gears regarding an acquisition. Obviously, you've built up an incredibly strong balance sheet. I'm curious as to where you're looking? In other words, what opportunity set are you looking to explore from an M&A perspective just because you have this enormous opportunity in front of you just with the cells that you plan to manufacture soon. What could you add to the tool set that will make that addressable market even bigger?

Yes. Well, first thing I want to say is I want to be -- everyone to be clear, our mission is to make this great technology we have of 100% active silicon anode batteries into smartphones, AR/VR, IoT, compute and in some aspects into some EVs. That's our #1 goal, and we are squarely focused on that.

But we do find as we go into that, that there are other aspects we could add to accelerate that growth in terms of channel, in terms of time to market, in terms of other components that help get that penetration of this great technology into market faster. But again, we will do it very thoughtfully. We're not -- we're going to do it in a way that is financially makes sense and also does not distract us from our main goal. So that is probably all I can say at this point. And we are getting quite a bit of inbound interest, as you mentioned, because we have a very strong balance sheet, but we're going to be very thoughtful about how we use it. Ryan can comment.

I mean I can't say it better. I mean, I think we'll pride ourselves on being good stewards of capital. It will have to make sense from a strategic standpoint, from a technology standpoint in order to further the core mission, and then we'll apply discipline, financial and diligence filters to it.

Our next question comes from Jeff Osborne from TD Cowen.

Just two on my side. You mentioned, Raj, the yield improvements in Malaysia. I was wondering if you could just level set us where were things, where are things? Where do you need to be? I think TJ touched on sort of a risk ramping up aggressively next year to meet the customer demand. So relative to maybe where his expectations and yours are, what's left to do? And what have you achieved so far?

Yes. Great question, Jeff. Look, this year, what has happened is we've had so much inbound interest on various markets. As I mentioned, 2 cell phone OEMs that we have development agreements that we had to make the batteries and these are actually the batteries that you see here that have been sampling to the customers. And then we had 2 different smart eyewear customers, and this is actually the batteries that we ship from our factory that go right into the leg here, 2 different sizes of that. Then we had another IoT customer, which is potentially very high volume. That's a slightly different size. We had to make that one. Then we were making the battery for the defense contract that we had. So a lot of like 5, 6 different cells that we're making. And the reason I tell you that is when you're making so many different sized cells, you have to constantly adjust the lasers, adjust our stackers to -- and the tooling to make each of those. So we -- and these are just samples, right? We're talking hundreds and thousands of units. So we did not really spend that much effort and energy on optimizing for yields because by the time we got one done, you're just retooling it for the next one.

Now we've given all the samples to the customers. We are focused on 2 markets, 2 products, which are shorter term for production like in '26, which is a bigger smartphone cell, this one and the smaller AR/VR cell. So these 2 cells is what we are focused on now. We have an Agility line, we have an HVM line. And since the last couple of months, the yields are coming up very nicely. And I review this every week. Actually, every week, I have a meeting on execution and very pleased with the progress, particularly on the laser side and on the stacking side, they are where we expect it to be. And again, like I said, the high-volume production now is mid- to late next year. So we will be ready for benchmark yields by that time. So I feel pretty good that it's headed in the right direction, and we are focused on it now.

Great to hear. Maybe just as my second question, to follow up on Mark's prior question. Can you just be more specific as it relates to was there a scope change with Honor as it relates to their expectations? Or was there a form factor change or chemistry change? I'm just trying to understand better the tweak that you made that then now has to go through this new validation testing cycle. I get that there was a change, but what was it driven by? And what was the nature of the change?

So when we send the samples to them, I think I mentioned last time, we were doing cycle life testing while they were doing cycle life testing, which means you charge your battery, discharge your battery, charge your battery, discharge the battery. You want to do it 1,000 times. Now we weren't -- we hadn't completed the cycle life testing before we shipped the battery. We had done some amount of cycle life. We sent it to them. They started doing it. Along the way, we noticed that the trend line is now such that to get past 1,000 cycles, we have to make a chemistry change, not a form factor change, not a scope change. So -- and we started validating that chemistry change, and we now have samples internally that we believe now will go all 1,000 cycles. And we are making batteries with that new chemistry now, and those should come out in Q4.

And this is a normal process in building a battery for the first time. Things take a little bit longer initially than we expect. But once you get the first one done, it's a whole lot easier because all the other smartphone customers have very similar requirements.

Our next question will come from Colin Rusch from Oppenheim.

Could you talk a little bit about the supply chain and preparedness? Certainly, there's been a lot of innovation around some of the anode materials that you guys could potentially use. And can you talk a little bit about what that opportunity set looks like as you work to advance some of the advanced applications that you're talking about here, both in the phone and the military markets?

Yes, absolutely. So what we are finding now is, I think maybe just for the broader audience, we are an architecture first battery manufacturer in the sense that we can take advantage of higher capacity or higher voltage cathodes. We can take advantage of different kinds of silicon anodes. We can take advantage of the latest advances in electrolytes to build a great battery because the better the materials get, the better our battery and our energy density we provide gets because we control the swelling and we have intellectual property and how to mix these different materials.

So to your point, what we are finding, Colin, is that there are quite a few now of silicon anode suppliers. We were using before a silicon anode called SiOx, which is some kind of oxide -- silicon oxide. Now we're using SiC, which is silicon carbon. But there's different variations of silicon carbon. For example, the size of the particle of the carbon or the shape of the particle is a little bit different. The way they're manufactured is different. So we are testing quite a few of them. We are sampling with one, but we have second source and third source on various one of these things. So it's an exciting time to be a battery manufacturer because we can take advantage of all these tremendous material innovations and provide better and better batteries.

And can you talk a little bit about the laptop opportunity? You've heard a lot about the phones and eyewear. But certainly, you guys have a fairly sizable opportunity in laptops as well. And as you get through some of the validation on the phones, how quickly could you transition into some of these other opportunities given that it seems like once you get the first one done and dusted, a lot of folks are going to line up real quick for incremental demand?

Yes. I mean it's a very good question. I mean I think you see now what AI is doing to all the edge markets, right? I mean you can see now all the AI PCs that are coming out. We talked about AI applications and smartphones. AR market is just happening because of generative AI because you're able to now talk to these things. So almost all these end markets which use batteries at the edge, the demand is increasing and the performance requirements and the battery requirements are increasing.

So laptops is a very exciting market. But again, for a small company like ours in early stage, we need focus. And I have been very focused on going after smartphones because I always believe that is the toughest battery to make, and we have a very good relationship with customers who are giving us requirements that we need to meet. From then -- from there, once we make that battery, we will be able to very quickly address other markets. Similarly, you can -- you are seeing now how quickly we were able to address the smart glasses market because we have the smartphone technology.

And I see the computers coming similarly. Once we get our smartphone battery ready and in production, we should be able to quickly go into the compute market. Because in that market, basically, what it is, is it's a bunch of smartphone batteries put together. That's one way you can think about it. It's not like one giant battery. It's a bunch of 5 batteries packed together. So packaging, battery management systems, those are the kind of things that we partner to get our battery technology into those markets.

So we are talking to some of those customers. But if anything, I'm holding back the team from getting too many samples out there because we don't have the scale to support all of them at once. I'd like to do 1 or 2 really well and then expand.

Our next question comes from Ananda Baruah from Loop Capital.

Yes, I guess a couple of clarification for me. Raj, was it that you said first half 2026, expect initial production volumes with Honor?

Yes. Again, it depends on how well the testing goes with them. I'm confident that what we're gaming this time will be really good in the sense of meeting the 1,000 cycle requirement. And if that goes really well, we'll find the right phone intersect for first half.

Got it. Awesome. And then the second smartphone customer, was it production in 2026 is the goal? And then part B of that question is, you had mentioned that you're able to sort of go through the process more quickly with the second smartphone customer. Can you just give some context around that? How much more quickly, what parts of the process like that? And I got a quick follow-up.

Yes, sure. Yes, it's also targeted for second -- for next year's production, but probably the later half of next year because given where we are starting -- because what we need to get from them, we've given them some cells, they're not testing. And next step from them is to get the exact dimensions of the cell that will launch into production next year, towards later part of next year, fall is when typically they launch. And we'll have some time to make the battery to the exact dimensions in the first half, give it to them and they'll put it through their phone and qualify it.

Like, for example, as I mentioned, this 1,000 cycles testing, right? We've now figured out what it takes to get to 1,000 cycles, and we have that chemistry now that we'll be sampling end of this quarter -- in fourth quarter of this year. You can see now that the next customer will actually get samples that we would have validated for 1,000 cycles. So you can see this problem that we are now addressing would have been solved, right, because we got ahead of that.

And there's a lot of things we learned with our collaboration with Honor, how they do with the drop test, how they do cycle life test, how they do fast charge test, how the battery management system is controlled by them, what temperatures they store the batteries, how much swelling is allowed at various temperatures. So there's a tremendous amount of know-how in how batteries are tested to get into smartphones, which we now have, thanks to our first customer. And that's helping us with the second one because the second one also gave us the requirements and we looked at it, we're like, wow, these look very similar to the ones we got for the first one. So we're now able to meet them much faster. And my expectation is that the rest of the market will have very similar requirements because they're all phones going into similar markets. So that's why my comment on the first one is the hardest for the ones after that will be a whole lot simpler.

[Operator Instructions] Our next question will be from Derek Soderberg from Cantor Fitzgerald.

So Raj, on the chemistry change, my understanding is the chemistry reformulation can take maybe multiple months, depending on how big of a change it is, I guess. Can you share like the time line from when you notice the issue to actually solving and integrating the new chemistry? And I guess what's maybe the risk that the new chemistry doesn't quite interact with the rest of the battery and you might need to reformulate it again?

Yes. I mean, look, the way we operate is we have a bunch of different chemistries that we are constantly have as backups. If this one doesn't work, what do we do next? What do we do next, what is next? My engineering team has been studying these, again, for the last whole the last year. We picked one that we felt was -- had the best chance, but we had backups running at the same time to see what it would be if that one had some challenges. And now the backup, we've tweaked it and the results so far look very good. So I'm confident that the batteries we shipped this quarter will meet. But we have other backups running to them if those need another tweak. I don't believe we'll need one more, but we're always good to be prepared with multiple chances, right?

The unfortunate thing about this, Derek, these are not like chips where we can do simulation and figure out what will happen, what will not. Like, for example, when I used to build processors, we'd have a simulation model. We would do analysis. We'd know what to do and then tools will help you do it. And when you tape out, you're pretty much guaranteed to get it. Unfortunately, in batteries, you just have to run for 1,000 cycles before you -- before you know if you got it. That's just the nature of it. But the good news is once you get it, you have it. So the first one is hard, but I feel pretty confident, but let's see how it goes.

Got it. No, I appreciate that. And then as my follow-up, Ryan, as you're looking into some of these potential agreements, I think ASPs have maybe changed since you guys have kind of last spoken about maybe a revenue breakeven point for the company. So as you guys sort of start to ramp to multiple customers, can you maybe share maybe what that revenue breakeven point is for you guys or anything else maybe on the near-term profitability model, if you update -- if you need to update margins or anything like that, can you share any of that detail now that you guys are sort of moving towards commercialization here next year?

Yes. No, I think, look, fundamentally, I think we like where the market is going in terms of valuing our technology in our product. I'll stay consistent with what we've said in the past that an important milestone for us is to get multiple HVM lines in place build out in Fab2, and that's why we've started that process. In addition to getting lots of operational benefits of being able to switch over lines and run multiple products, it helps get to a certain level of scale. And it's really beyond that point. So Line 2, Line 3 that we think gets us to where we're gross margin positive and able to absorb the overhead. This is on a non-GAAP basis. And then really, it's as we march towards filling Fab2 with equipment and getting full utilization there that we see as being adjusted EBITDA positive or a proxy for cash flow positive.

There are no further questions at this time. With that, I'd like to turn the call over to Dr. Raj Talluri for closing remarks.

Yes. Thanks, everyone, for the thoughtful questions and joining us today. To close, I want to bring it back to the big picture. Enovix is entering one of the most important phases in our company's history, which is taking our breakthrough technology and scaling it to commercial production. We have a clear line of sight to that goal. Our AI-1 platform has been validated by third-party Polaris Labs as the highest energy density battery ever reported in a smartphone. Our lead smartphone and smart eyewear programs are progressing towards launch. Our manufacturing capabilities at Fab2 are ramping steadily. And we've delivered -- we have strengthened the balance sheet, and we secured the capital we need to execute. And we built a team that knows how to deliver.

While qualifications and ramp cycles take time, what matters most that we are on the right path, with the right partners, with the right technology and with the resources to see through. I am incredibly proud of what the team around the world has accomplished, and I'm confident in the road ahead. Thank you once again for your continued support and for your interest in Enovix. We look forward to updating you on our progress next quarter. Thank you.