Enovix Corporation — Q2 2022 Form 10-Q
Reporting period: Quarter ended July 3, 2022; fiscal year-to-date (YTD) also ended July 3, 2022. The company designs and manufactures silicon-anode lithium-ion batteries. Fab-1 began commercial manufacturing in Q2, and Enovix reported its first revenue from planned principal business activities. Comparative periods ended June 30, 2021; the company notes its fiscal calendar changed in 2021, which may limit comparability.
Financial results and position
| Metric | Q2 2022 | YTD 2022 |
|---|---|---|
| Revenue | $5.1 million | $5.1 million |
| Cost of revenue / gross margin | $5.7 million / loss of $0.6 million | $6.3 million / loss of $1.2 million |
| Operating expenses | $27.4 million | $52.0 million |
| Loss from operations | $28.0 million | $53.1 million |
| Net income (loss) | Loss of $1.1 million | Income of $41.6 million |
| Operating cash flow | Quarterly figure not provided in the filing text | Use of $40.3 million |
| Capital expenditures | Quarterly figure not provided in the filing text | $14.5 million |
| Free cash flow, non-GAAP | Quarterly figure not provided in the filing text | Use of $54.8 million |
- Q2 revenue was almost entirely service revenue ($5.1 million); product revenue was immaterial. Customer A accounted for $5.0 million. Gross margin was negative, approximately 12.5% of revenue.
- Net income included noncash gains from lower warrant fair value: $26.4 million in Q2 and $94.2 million YTD. These gains drove YTD reported net income despite a $53.1 million operating loss. YTD adjusted EBITDA, a non-GAAP measure, was a loss of $37.4 million.
- Cash and cash equivalents were $384.7 million at July 3, 2022, primarily in money market funds. Working capital was $371.8 million. The company reported no outstanding debt; liabilities included a $30.1 million private-placement warrant liability.
- Total assets were $487.3 million and stockholders’ equity was $428.7 million. Property and equipment, net, was $90.9 million; inventory was $0.7 million. YTD cash declined by $0.6 million, with $52.8 million of net proceeds from public warrant exercises supporting cash resources.
Changes and operating developments
- Compared with Q2 2021, revenue rose from zero as commercial activity began. Operating expenses increased 95% to $27.4 million: R&D rose 66% and SG&A rose 154%, driven by hiring, stock-based compensation, subcontractors, and professional costs.
- Enovix shipped Fab-1 cells to 10 OEMs and four distributors for prototypes, qualification, and field trials. The first production line entered service in June; the second line remained under construction.
- Management deferred completion of Gen2 equipment ordering while incorporating Fab-1 learnings and BrakeFlow technology. Full equipment delivery is now targeted for the second half of 2023.
- Deferred revenue decreased to $2.9 million from $7.9 million at January 2, 2022; deferred contract costs declined to $1.3 million from $4.6 million.
Outlook, risks, and contingencies
- Management expects cash to fund requirements for at least the next 12 months from the filing date, based on anticipated spending and available cash. It expects operating losses and rising R&D, SG&A, and capital spending as manufacturing scales, and says additional financing may be needed for future expansion.
- In Q3 2022, management planned to prioritize manufacturing improvements over shipments, including installing automated conveyance and improving throughput and reliability. It targeted bringing up the assembly section of Fab-1’s second line by fiscal year-end 2022 and annualized output in the single-digit millions of units from Fab-1’s two lines by the end of 2023.
- Key execution risks include low or inconsistent manufacturing yield and throughput, equipment issues, customer qualification and order conversion, battery performance and safety, supplier availability and cost, and delays in securing and building additional facilities. COVID-related shipping delays, supply constraints, and intermittent vendor support had affected equipment bring-up.
- The stated revenue funnel was $1.5 billion, including $1.09 billion of engaged opportunities and $414 million of active designs and design wins. This is potential full-production-year value, not contracted revenue or guidance; conversion depends on qualification, manufacturing performance, and capacity.
- Open purchase orders and ordinary-course contractual commitments were estimated at $10.4 million. A putative California wage-and-hour class action filed by former employees remained pending; the filing did not state a clear potential loss estimate. A motion for attorneys’ fees in a dismissed Business Combination lawsuit was also pending.
- Management reported effective disclosure controls at a reasonable assurance level and no material change in internal control during the quarter. Enovix expected to cease being an emerging growth company and become a large accelerated filer at fiscal year-end January 1, 2023, bringing additional reporting and auditor-attestation requirements.
Important facts for investors to verify
- Whether Fab-1 achieves sustained yield, throughput, reliability, and commercially meaningful product shipments—and how the planned Q3 manufacturing work affects deliveries.
- Progress and timing for Fab-1’s second line, Gen2 equipment delivery, and the Fab-2 and Fab-3 site-selection and funding plans.
- Revenue quality and concentration: Q2 revenue was predominantly service revenue, and Customer A represented nearly all of it; confirm conversion of customer evaluations and design wins into purchase orders.
- Cash burn and financing runway against rising operating and capital spending; management’s 12-month liquidity statement depends on its spending assumptions.
- Potential dilution from outstanding private-placement warrants, equity compensation, and any future financing; review the warrant valuation gain separately from operating performance.
- Developments in battery safety, customer qualification, supplier commitments, and the pending wage-and-hour matter, including any material change in exposure.