Enovix Corporation — Q1 2022 Form 10-Q
Reporting period: Quarter ended April 3, 2022. Enovix designs and develops silicon-anode lithium-ion batteries using proprietary 3D cell architecture. Commercial manufacturing had not yet commenced at the start of the period, and the company had generated no product revenue from its planned principal business.
Financial performance and position
| Metric | Q1 2022 | Comparable 2021 quarter |
|---|---|---|
| Revenue | No service revenue recognized; no commercial product revenue | No service revenue recognized |
| Cost of revenue | $0.5 million | $1.6 million |
| Research and development | $12.7 million | $5.6 million |
| Selling, general and administrative | $11.9 million | $4.2 million |
| Operating loss | $25.1 million | $11.4 million |
| Net income (loss) | $42.7 million | $(16.2) million |
| Operating cash flow | $(19.7) million | $(8.6) million |
| Capital expenditures | $10.5 million | $7.1 million |
| Free cash flow, company-defined | $(30.1) million | $(15.8) million |
The reported Q1 net income was principally due to a $67.8 million non-cash gain from a decline in the fair value of private placement warrants. Excluding that warrant revaluation, the company reported adjusted EBITDA of $(19.4) million. Basic EPS was $0.28; diluted EPS was a loss of $0.16 because the warrant fair-value adjustment is included in the diluted EPS calculation. These figures do not indicate profitable operations; the company reported a $25.1 million operating loss.
Cash and cash equivalents were $408.2 million at April 3, 2022, versus $385.3 million at January 2, 2022. Working capital was $398.1 million. The company had no outstanding debt. Total liabilities were $85.2 million, including a $56.5 million warrant liability and operating lease liabilities. Stockholders’ equity was $421.1 million. No meaningful operating margin can be inferred because revenue was not recognized.
Material changes versus the prior comparable period
- Operating expenses increased 121% to $25.1 million, driven mainly by higher headcount, stock-based compensation, subcontractor costs, professional fees, facilities and materials.
- Research and development rose 128% to $12.7 million; SG&A rose 185% to $11.9 million.
- Operating cash use increased to $19.7 million from $8.6 million, and capital expenditures increased to $10.5 million from $7.1 million, reflecting continued development and manufacturing build-out.
- Financing provided $53.0 million, primarily from January exercises of public warrants. Cash increased by $22.9 million during the quarter.
- Net income improved from a loss to a profit, but the change was driven by the non-cash warrant revaluation rather than operating performance.
Outlook, management commentary and risks
- Management forecast first product revenue in Q2 2022 after producing customer-qualification batteries on Fab-1. The filing reported qualification-cell deliveries and a revenue funnel of $1.5 billion, comprising $1.11 billion of engaged opportunities and $371 million of active designs and design wins. The funnel is potential full-production-year value, not contracted revenue or backlog.
- Fab-1 was operational, but the company described technical challenges affecting yield and production volume, along with equipment shipping delays, supply constraints and intermittent vendor support. Management said a small number of process steps were yielding below 95% and that plans were in place to improve them.
- In May 2022, after the quarter, the company began ordering equipment for a Gen2 line planned for Fab-2, with installation targeted for the first half of 2023. It also planned to order a pilot “Agility” line during 2022.
- Management expected cash to cover funding needs for at least the next twelve months from the filing date, while noting that expansion may require additional financing. R&D, SG&A and capital spending were expected to increase.
- Key risks include manufacturing scale-up, yield and throughput, customer qualification and conversion of design wins to purchase orders, supplier availability and cost, product performance and safety, competition, and the need for capital. COVID-related disruptions and geopolitical conflict, including Russia’s invasion of Ukraine, could affect supply chains and costs.
- A putative California wage-and-hour class action filed by two former machine operators was pending. A motion for attorneys’ fees and costs in a previously dismissed Business Combination lawsuit was also pending. The filing did not provide a clear estimate of potential loss for these matters.
- Management concluded disclosure controls and procedures were effective at a reasonable assurance level as of April 3, 2022; it reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether Q2 2022 product revenue was achieved, and its amount, customer mix, pricing and gross margin.
- Fab-1 production volumes, yield progression, qualification outcomes and any further delays or supply constraints.
- Whether the $1.5 billion revenue funnel converts into funded design wins, purchase orders and recognized revenue.
- Cash burn and capital requirements for Fab-1, Fab-2 and the Agility line; whether additional financing is needed and on what terms.
- Potential financial exposure and developments in the wage-and-hour case and the pending attorneys’ fee motion.