Derek Soderberg: Yes. Hey, guys. Thanks for taking my questions. So just, I’ve got a question on the Shareholder Letter. You guys were talking about, the two smartphone customers, in April when you produced the first internal samples. I’m curious beyond sort of the FAT and SAT associated with the equipment, do you still need to pass internal battery cell qualification, before shipping samples this quarter? Or is it a scenario where, once you get SAT for the Agility Line, you’re ready to ship samples? Just wondering what else you have to do on the battery side to start shipping samples?
Raj Talluri: Yes. Absolutely. So, look, there is two aspects of qualification. One aspect of qualification is, making sure the machines are working right, like FAT, SAT, and so on. But, then there is the testing of the battery to make sure that, it is safe and it is goes through all the testing of safety, and it meets the cycle life, and it meets the performance requirements, it meets the fast charge and so on. So, we are doing that now in parallel, and once we do that, that’s when we will ship the batteries. Because what you don’t want to do is ship the batteries without being fully tested to the customers because you don’t want to see any surprise at the customer side when they test it. So, you want to test it like how the customers test it, which is what been, really interesting for me is that we are now able to get all this test criteria of how they would actually test into Enovix.
So, now we are testing them exactly like how they would test after they got them. Once we’ve had all the tests and everything is good from the main manufacturing line, they can go without that. But, we first need to make sure the early samples go through all of that test.
Derek Soderberg: Got it. And, then as my follow-up, I’m curious what the reasons were to sign a development agreement with you guys. What were the reasons that that specific OEM had for signing today? Was it something they finally felt comfortable with on the production side? Was it just a little bit more time working with your battery technology? Curious if we can talk about that. And then, do you think there’s some potential for this customer to provide funding for production someday, if you guys were to sort of hit a certain criteria with the technology or production? Just curious if you could share some more, info on that deal. Thanks.
Raj Talluri: Yes. Absolutely. So, we gave many of these customers early samples from our, Fremont line, which I mentioned before. We will give them small samples. They’re testing them, they’re different stage of testing. They have gone through most of that testing now, and they see what they’re able to get. Many of these customers came and visited us in Fremont and saw how we manufacture the batteries, convince themselves about the viability of the manufacturing. And then, and then they felt like, they want to work closely with us, to actually even further optimize the battery so that it works well in their phone models. Because, you got to remember, every one of these customers use the battery slightly differently, right?
And, I think that is something that’s not so obvious from outside. People don’t just take a battery and slap it in the phone. So, they kind of figure out how do they fast charge, what algorithm used to fast charge, how much energy dense did they use, and how does it work at different temperatures, and what size do they keep and what different shape do they use. So, there’s a lot of proprietary know-how at these customers and how they use the battery. What this agreement does is it allows them to share with us all that information so that we can customize our battery to their actual specifications. And, that’s super exciting because now we’re actually building something that when it’s done and works, will fit in the particular phones that they are looking at.
And, I expect similar things to happen with other customers.
Operator: Our next question comes from Ananda Baruah of Loop Capital Markets.
Ananda Baruah: Yes. Hey, thanks, guys. Yes, good afternoon. Thanks for taking the questions, and congratulations on the progress. It’s really great to see. I guess, Raj, just I guess sticking with capital, can you walk through like how you’re thinking about raising capital? And I guess, Farhan gave some context by year, how to think about CapEx per line in the coming years. But, like how should we think about timing, and what are the various methods that you have to raise capital with? And, I have a quick follow-up. Thanks.
Raj Talluri: Yes. I think the previous question, I didn’t answer the second part. As we discuss these agreements with the customers, we are clearly getting, offers from them to see what can they do financially with us, to actually get to the next level. So, those conversations are also happening, and we’re also talking to some governments about that. So, I’ll let Farhan add more color to it. But, yes, those are happening now as we make more progress on our batteries.
Farhan Ahmad: Yes. So, in terms of the funding for the lines, I don’t think it’s going to be a big challenge. Once, we have the qualifications in the back and the customers on the other side ready to buy the batteries. And, as Raj mentioned, we have customers that have expressed, even without asking a desire to pay if needed to make us successful and make the factories bring them up. So, the those conversations are happening. We are also talking to sovereign wealth funds and things like that to see if we can get more funding. Where the stock is right now, like, it’s not at a level where, I can have support of the Board to consider any further capital. And, we also don’t feel like, like, that it’s anywhere close to the price that we would consider raising capital here.
And, with the actions that we have taken to reduce our cost, we have a fairly long runway. We have made very dramatic, cuts to our cost structure. And, so we can have long runway before we need to raise capital.
Ananda Baruah: That’s great context, Farhan. Thanks so much. And, the quick follow-up is and maybe this is for, Ajay. There is in the prepared remarks, guys there is some mention of 90% yields. At this point in time, I guess, yes, Farhan thought you could sneak that in. I mean, Ajay thought you could sneak it in. But can yes, just clarification of that, and then are you still on, sort of on track for 90% yields by the end of the year with, with the high speed. Yes. Thanks.
Ajay Marathe: Yes. Thanks, Ananda. I knew somebody would catch up to that and ask that question because, we’re quite proud as where we are in terms of even at FAT, like I mentioned earlier. Some of the tricky processes that we have, obviously, as some of you are closer to it, the laser dicing and stacking process, which is in the front-end. And, that typically is where we, in Gen1, at least we lost a good amount of yield. And, that’s where we feel very confident now that, even in the first shot, FAT, when we did the FAT, not only the 25 parameters of CTQs were looking very good, more than 1.1, 1.3 CPKs. So, for people who are close to that, that’s upwards of 95% yield, in those processes alone, right? So, again, like I said, operations guy gets pretty excited actually when you see anything that is above 95%. So, that’s where we are right now. We will only get better, and very confident about what we talked about yields by the end of the year.
Ananda Baruah: Excellent. Great context. Really appreciate it. Thanks, guys.
Operator: Our next question comes from Gus Richard of Northland Capital Markets.
Gus Richard: Thanks for taking the question. Just curious on, when you’ll start sending samples to customers and, from Fab2 and how quickly that can ramp? Will you start to send samples out of Fab2 in Q3, or will that have to wait until Q4?
Ajay Marathe: No. It’ll definitely be Q3 from Fab2. We are gearing up to finishing up the — FAT is, like I said, done. We are going to finish up SAT here in Q3. But, the samples definitely in, going to the same customers that we Raj and Farhan have talked about in Q3.
Raj Talluri: Yes. So, I’ll just to add a little bit more color, we are making samples now of this EX-1M here. So, those will go out to the customers first. And, so they’ll start doing some testing and so on. Meanwhile, we’ll also start building on our side. And, as they start testing, they give us some more feedback and, hey, we’d like this tested, that tested. And, we’re going to do all those tests also of the samples that come out from, Penang, and then we’ll send them those in Q3.
Ajay Marathe: So, just a quick clarification Farhan reminded me. Yes. So, first battery is out of Fab2 still happening here in Q2, right, which is what we have been talking about, and we are confirming that that’s going to happen. But, fully tested batteries as, Raj pointed out to go to the customers after all the safety testing, after everything that is relevant to the customer going out will be in Q3, early Q3.
Gus Richard: Got it. And, then you’re still sampling customers out of Fremont and, sort of what’s the volume that you’re able to ship to customers at this point? Was that a significant portion of Q1 revenue?
Raj Talluri: No. No. These are these are not big volumes. These are hundreds of samples. Like, as you guys know, we don’t have a manufacturing high volume manufacturing line here. We mainly have an R&D line, of with which we can make, make some samples. But, we don’t have to ship a lot because it’s mainly for, testing and make sure they’re okay. But ultimately, customer wants samples from our Agility Line, which as Ajay mentioned, we’re super excited. The FAT is all done and the machines are all almost there in Penang. So, in a short order, we’ll be getting samples from there.
Gus Richard: Thanks so much.
Operator: Our next question comes from George Gianarikas from Canaccord.
George Gianarikas: Hey, everyone. Thank you for taking my question. Appreciate it. I’m wondering if you can update us on what’s happening with materials related conversations, companies like Group 14. Specifically, if you can help us with more better quantify the performance improvement you bring to cells using, relative to those using conventional cell construction with their material? There seems to be still an active debate in the marketplace? Thank you.
Raj Talluri: Yes. I mean, look, we are a material agnostic company, and we’re using different kind of materials. Luckily, we now also have a graphite battery that Routejade makes. So, we are also able to figure out how to improve those batteries with some amount of this newer silicon that we can put on top of that. Everything we’ve seen, between 5% and 8%, if you more put any more than that, the battery swells up. So, the only architecture that I know of that can actually allow people to use more of silicon, in a battery is the Enovix architecture. And, we are at any reasonable amount that actually meaningfully increases the energy density. And, that’s what we are focused on, and we use 100% active silicon. So, as different kinds of silicon materials come out, we are happy to use them, test them, and they all have, properties like longer cycle life, different kinds of fade, different kind of fast charge, and so on.
