Enovix Corp. — Q2 2023 Form 10-Q
Reporting period: Quarter and fiscal year-to-date ended July 2, 2023; comparisons are to the periods ended July 3, 2022. Financial amounts below are in U.S. dollars.
Business context and operating progress
Enovix designs, develops and manufactures silicon-anode lithium-ion batteries. It remains in early commercialization, with production focused on scaling its Fremont facility (Fab1) and preparing a second-generation manufacturing line in Malaysia (Fab2).
In Q2, Enovix produced 22,502 wearable-size cells, 25% above its plan, and shipped more than 10,000 cells to customers. It reported $42,000 of revenue, received a purchase order for BrakeFlow-enabled cells for the U.S. Army, and reported a $1.59 billion revenue funnel. The funnel represents potential value at full production-year levels, not contracted revenue.
Financial results and liquidity
| Metric | Q2 2023 | Q2 2022 | YTD 2023 | YTD 2022 |
|---|---|---|---|---|
| Revenue | $0.042 million | $5.101 million | $0.063 million | $5.101 million |
| Cost of revenue | $14.235 million | $5.739 million | $26.483 million | $6.254 million |
| Gross loss | $14.193 million | $0.638 million | $26.420 million | $1.153 million |
| Operating expenses | $37.652 million | $27.393 million | $88.675 million | $51.993 million |
| Operating loss | $51.845 million | $28.031 million | $115.095 million | $53.146 million |
| Net income (loss) | $(64.306) million | $(1.135) million | $(137.909) million | $41.572 million |
| Basic EPS | $(0.41) | $(0.01) | $(0.88) | $0.27 |
Q2 revenue was product revenue. The prior-year quarter and YTD revenue was primarily service revenue, including $5.0 million from one customer. Fab1 ramp costs, including labor and depreciation, contributed to higher cost of revenue. Operating expenses included a $4.4 million equipment impairment in Q2 and substantial one-time severance and equity-compensation costs from executive departures earlier in 2023.
Net results were also affected by noncash warrant remeasurement: warrant expense was $14.3 million in Q2 2023 and $27.2 million YTD, compared with warrant gains of $26.4 million and $94.2 million in the prior comparable periods. YTD stock-based compensation was $44.2 million.
Cash and liquidity: At July 2, 2023, cash and cash equivalents were $343.2 million and short-term investments were $66.1 million; cash, cash equivalents, restricted cash and short-term investments totaled $409.4 million. Working capital was $376.4 million. YTD operating cash use was $49.2 million, investing cash use was $81.5 million, and capital expenditures were $15.7 million. YTD free cash flow, as defined by the company, was negative $64.9 million.
Debt: Enovix issued $172.5 million principal amount of unsecured 3.0% convertible senior notes due May 2028; carrying value, net of issuance costs, was $166.8 million. Net proceeds were approximately $166.6 million, including $17.3 million spent on capped calls. The initial conversion price is $15.61 per share. The notes create potential cash interest, repayment and dilution considerations.
Changes, outlook, risks and unusual items
- Revenue fell sharply because the prior-year comparison included completed service-contract milestones; current-period commercial product revenue remained minimal.
- Management said cash was expected to cover funding needs for the next 12 months from the filing date, based on anticipated spending. It also cautioned that losses and operating cash use are expected to continue, expenses and capital spending are expected to rise, and additional financing may be needed over time.
- Management targeted installation of the Agility customer-qualification pilot line by year-end 2023 and first samples from the first high-volume Gen2 Autoline in April 2024. These are forward-looking targets, not guarantees.
- On July 26, 2023, after quarter-end, Enovix entered a 10-year manufacturing agreement with Malaysia-based YBS for a planned $100 million Gen2 Autoline 1 investment. Enovix is to fund 30%; YBS is to finance 70%, with Enovix in discussions about providing collateral. The arrangement includes cost-plus pricing and a minimum Enovix commitment.
- Key execution risks include manufacturing yield, throughput, equipment reliability, customer qualification, product performance and safety, supplier availability and cost, and timely Fab2 development. The company also disclosed a securities class action alleging misstatements concerning manufacturing scale-up; it said it could not reasonably estimate any potential loss. Wage-and-hour matters are also pending.
- Management reported disclosure controls effective at a reasonable assurance level and no material change in internal control over financial reporting during the quarter.
Investor verification priorities
- Track whether production yields, throughput and customer qualifications support the stated Agility and Gen2 timelines, and whether shipments convert into material, repeat revenue.
- Verify the economics and funding structure of the YBS agreement, including the minimum commitment, collateral discussions, cost-plus pricing and any obligations tied to YBS financing.
- Monitor cash burn, capital expenditures, financing needs and the ability of the reported liquidity to fund planned expansion; distinguish cash and investments from the notes’ principal obligation.
- Assess recurring operating costs separately from severance, stock-based compensation, equipment impairment and noncash warrant fair-value changes.
- Follow developments in the securities and employment litigation, customer concentration, product safety and reliability, and supply-chain risks.