Enovix Corporation Common Stock 2026 Q2 Earnings Call

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. 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 three 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 is already well underway. We expect to finish the remaining testing by the end of 2026, 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 nine times 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 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 two 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. We are 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 our 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. The same progression is underway.

The enhanced cells are now showing stronger capacity retention on our internal work, and the data is now with our lead customer's 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 interaction 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 for our cells and battery packs, as well as a full suite of customers' reliability test. We shipped approximately 2,100 AI-1 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 nine-fold 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 opportunity is often many multiples more. More than half the growth came from drone 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 in this pipeline is at stages where customers are actively evaluating and testing our cells or designing them into products.

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 at industry events in U.S. and Europe. At approximately 360 watt-hours per kilogram while supporting high continuous and pulse discharge, 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 two 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 Naraghi, our Chief Business Officer. You're 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-designation 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, clearing 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, MX2 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 EX3M technology node.

We sampled cells to one Tier 1 smart eyewear customer in Q2. Many of the same EX3M 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 am 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 are making very good progress on smartphone cell modeling as well.