Thank you. Hello, everyone, and welcome to Enovix Corporation's Third Quarter 2023 Financial Results Conference Call. With us today are President and Chief Executive Officer, Dr. Raj Talluri, Chief Financial Officer, Farhan Ahmad; and Chief Operating Officer, Ajay Marathe. Raj and Farhan will provide an overview, and then we'll take your questions. After the Q&A session, we'll conclude our call. Before we continue, let me kindly remind you that we released our third quarter 2023 shareholder letter after the market closed today. It's available on our website at ir.enovix.com. A replay of this video call will be available later today on the Investor Relations page of our website. Please note that the shareholder letter, press release and the conference call all contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are based on current expectations that may differ materially from actual future events or results due to a variety of factors. For a discussion of factors that could affect our future financial results and business, please refer to the disclosure in today's shareholder letter and our filings with the Securities and Exchange Commission. All our statements are made as of today, November 7, 2023, based on information currently available to us. We can give no assurance that these statements will prove to be correct, and we do not intend and undertake no duty to update these statements, except as required by law. During this call, we will also discuss non-GAAP financial measures, which are not prepared in accordance with generally accepted accounting principles. You can find a reconciliation of the GAAP financial measures to the non-GAAP financial measures in our shareholder letter, which is posted on the Investor Relations page of our website. I will now turn the call over to Raj to begin. Raj?

Thank you, Charlie, and thank you all for joining us today. I'm going to kick it off with a few high-level remarks, and then I'll pass it to Farhan to cover some of our financials and the outlook. After that, I'm going to make some closing remarks, and then we'll take your questions. Now as you can see from the recent announcements that we’ve been making, we've been super busy in this quarter. We started the factory acceptance testing, or the FAT as we call it, on our Gen2 equipment on time. And we have the fast equipment landing in Malaysia in November, and we remain on track to go into production in April next year with fast batteries from that line. Now, a little bit earlier today, we posted a video of Ajay on site at one of our Gen 2 vendors. Please go check out that video. It's very exciting to see the new machines coming online and how everything is going. Now, we achieved our strategic objectives in Fab1 here in Fremont during this quarter, which allowed us to transition from this expensive 24/7 manufacturing in Fab1 to converting it into more of a center of innovation focused on R&D and customer qualifications. This allowed us to shave off $22 million of our annual burn. Now this quarter, we also completed the acquisition of Routejade, a company in Korea, which vertically integrates our manufacturing process from electrode coating all the way to making battery packs. Now earning our own coating, as I mentioned before, is a highly strategic move for us. It reduces our CapEx, increases our margins, enhances our manufacturing capability, and speeds up access to new materials so that we can bring new products to the market much faster. Now we also gained complementary business from Routejade, who are shipping products into leading IoT and military customers. This gives us cross-selling opportunities to be able to sell Enovix's current silicon batteries also into that customer base. We announced that Enovix enabled a product in the market, an FDA approved portable multi-vital sign monitor. This will be sold in CVS, Walgreens, and Walmart next year. And last but not least, we shipped breakthrough enabled batteries, which is our proprietary technology for keeping batteries safe to the U.S. Army under contract, which drove up this quarter's revenue. Now, before I pass it to Farhan, I'd like to take a few minutes to make some big picture comments on how we are positioning the company to seize this tremendous opportunity in batteries that's in front of us. As I mentioned in my first call as Enovix CEO almost 10 months ago, my management philosophy is to really start with the customers, their products, how our products enable their products, and move backwards to making great products on our side. This is exactly what has happened during the last many months. We have rebuilt our management team. We have driven much deeper relationships with the key decision-makers at our customers, and now we understand their unique product requirements. Now we received consistent feedback from some of the leading smartphone OEMs that the Enovix architecture offers the industry's best path to high-energy density batteries matched with cycle life and fast charge. All three are very important to our customers. If anything, what I've noticed all the time since I've been the CEO here is that our competitive position in energy density and consumer electronics is even better than when I joined the company. I'll talk a little bit more about it in a few minutes. Our relationship with our smartphone OEMs is strengthening and we have managed to now understand exactly where our competition is and what kind of batteries our customers are currently using. Based on this belief, I believe that Enovix is capable of delivering multiple billions of dollars of revenue with strong margins, similar to the businesses I have been associated with at Qualcomm and Micron. With a superior product that we are going to make here in the portable electronics market, which has a market size exceeding over $20 billion. Now we're also seeing strong interest from the EV OEMs, where the market is much larger than the consumer electronics market. But the question for us is, how do we get that done most efficiently? And how do we live up to that promise? Now, I first want to show you the reason why we are so focused on the smartphone market. I want to show you on this slide what has happened in the smartphone market from 2025 to 2023. Now, I've been involved in this market very intimately during my time at Texas Instruments, Qualcomm, and Micron. If we look at 2025, smartphones had a 2-inch TFT display, close to a couple of hundred-megahertz CPU, 3G modem, and single-megapixel camera. And we had like a 900 mAh battery, which was about 8 ml, if you will. Now, as you transition to the right, what has happened is that the CPUs became much more powerful, and there's multiple CPUs now. Today, in 2023, there are Octo-Core processors in multiple gigahertz shipping in these phones. The displays have gone from 2 inches to 6.8 inches, HDR 10. I'll talk a little bit more about the displays in a minute. Multiple cameras, 5G cellular. And you can see the transition along the way. Now the phones themselves have increasing capability. You can now take great pictures. You can watch 4K videos. You can do your GPS-based navigation with maps, make purchases, and so many other things, which has really helped the smartphone market grow because of these innovations that have been launched with the processing power and displays and cameras to almost 200 million units. Now the battery, what has happened to the battery? During the same period, the battery capacity, if you talk about the capacity of batteries in milliampere-hours, has gone from 900 milliampere-hours to almost 5,450 milliampere-hours in a few of the very high-end devices. However, an interesting thing to note is that as the battery milliampere-hours grew, the size of the battery also grew, which means this increase in energy has been achieved by making the battery bigger and bigger. So the battery grew at a 7% CAGR. The battery capacity grew at 11%. But if you actually think about the energy density of the battery, which is how much has the capacity grown per liter, it's only grown by 4%. This is clear if you look at the most recent batteries, how little increase this really represents. Now, why is this a problem? This is a problem because the increase in energy capacity in smartphones has been achieved by growing the batteries larger and larger. It's only a modest increase in energy density. The problem now is that you can't make the phones any bigger. Because if we make the phones any bigger, they barely fit into your pocket anymore. Now we have a problem: how do we continue to increase and supply the demands of these increasing smartphone applications without increasing the size of the battery? Now, looking at the next slide here, it's going to show you that the emerging use cases haven't stopped. I talked a little bit about AI and machine learning use cases that are happening at the edge, discussed multiple displays, larger displays, foldable phones. If you look at the mixed reality headsets, all these new applications that are emerging, and recently, you’ve seen announcements from other chipmakers around even higher performance processors and better displays. But the battery is not keeping up and the phone cannot get any bigger. So there is a problem. That's why customers are very interested in working with us at Enovix because our technology is one of the few that can actually enable smartphones to continue growing that demand curve by increasing the energy density. This slide shows you our battery technology. On the left side, I show the average capacity of conventional batteries, which are the graphite batteries installed in smartphones currently shipping in 2023. We use that as a baseline. Our EX1, which is the currently shipping product we have, has over an 18% increase in capacity over that. Now it only goes up to 500 cycles and charges at a standard rate, so it's used in some IoT applications but not in smartphones. To be able to be used in smartphones, you need to reach 1,000 cycles and be able to charge much faster. Our EX2 has that capability. In our EX2 technology roadmap, we will be able to increase the capacity by 30-plus percent compared to the baseline, and we will also achieve 1,000 cycles in fast charging. That is super exciting for all the smartphone OEMs because that's an area where there is significant need, and it changes the game on how smartphones will be utilized once we reach that. This product has received extremely positive feedback from customers, and we plan to sample this next year and ramp to high-volume production in Malaysia in the millions of units. With the changes we've made, Enovix is now a vertical business, which means it is focused on a few large customers with our products that are aligned in form fit and function to their requirements. This contrasts with how our previous strategy was at Enovix, where we were primarily focused on standard-sized batteries for hundreds of customers. The beauty of the vertical-first strategy is that the majority of the industry's volume happens to be concentrated in 6 to 12 large customers: five to six smartphone customers, a few PC OEMs, and a few wearable customers. So by being successful there, this results in a large business meeting the demands of these high-volume customers, while our product portfolio can be a lot more focused and our operational expenses can be much less and much more targeted in delivering value and performance to markets that need it most. Now we are very well suited for this vertical strategy because of the strong customer relationships we have forged over multiple decades. I, myself, and many members of our team have been working with these industry-leading OEMs for a long time. We are well positioned in smartphones. That market is the one we are targeting with a lot of intent due to the requirements there. From then, we will clearly move from smartphones into PCs. Along the way, with Routejade's acquisition, we will also continue to sell into the IoT and wearable markets. I am confident that with this EX2 technology, we will be able to launch smartphones in '25, '26 time frame, and that will help us scale into multiple models of smartphones and PCs in 2026, with a solid path to profitability. Now with that, I will turn over to Farhan to discuss our financials and give some guidance for the next quarter.

Thanks, Raj. So I'll keep my comments at a high level. And just discuss the quarter and the guidance. Most of the details regarding the order and the guidance can be found in our shareholder letter and the press release. First, talking about the quarter. We delivered record product revenue during the quarter on the strength of the Army contract and shipments to the Army for that. We continue to manage our OpEx tightly and keep control of our spending and ended the quarter with $370 million of cash and equivalents. We plan to continue to manage our spending tightly. As we disclosed previously, the strategic realignment of Fab1 will lead to annual savings of about $22 million. As a result, we are lowering our cash usage for the year. Operational cash usage for the year is now expected to be $210 million. Looking ahead to the fourth quarter of 2023, we forecast revenue to be in the range of $3 million to $4 million, driven by a partial quarter of Routejade's revenues and continued strength from the Army contract. I'll now turn it back to Raj for closing comments.

Thank you, Farhan. In closing, we had a very productive third quarter. We accomplished quite a few things as we discussed at the beginning. We remain on track to begin high-volume manufacturing in Malaysia next year while bringing industry-leading batteries to our customers to allow their products to differentiate and excite the consumers, who ultimately will be the ones buying these products. Now, we made significant moves to lower our cost structure, as Farhan mentioned, while at the same time, we're also speeding our technology development and enhancing our manufacturability. Now we have put in place the right go-to-market strategy, I feel, to deliver on the promise of getting our leading edge technology to the market most efficiently. Now with that, I'll open up to questions. Operator?

We will now begin the Q&A session. Please note that this call is being recorded. Before we go to questions, we are going to read the two most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is, when can we expect Enovix to start generating meaningful revenue?

Yes. The question of meaningful revenue. I think as we mentioned, with Routejade's acquisition, our revenue is already getting set to grow nicely. We guided $3 million to $4 million in the fourth quarter, and we expect that to continue to grow next year. As we start producing millions of batteries from our own Malaysia factory in '24, '25 is when you'll see the ramp, and in '26 it will continue to grow faster.

The second question is with Fab1 closing, how will Enovix satisfy the contracts with the Army and the medical device maker?

Yes, the question on Fab1. As I mentioned, we've made quite a few batteries. We've doubled our production every quarter for the last few quarters. We now have enough inventory of batteries to support the production needs of the current customer base. We are still continuing to make batteries here for the Army contract. So we do have a line on which we can make those batteries, and we will continue to do that through next quarter. That also gives us a very good way to make larger batteries because our previous line was mostly making small batteries, while the Army batteries are larger batteries that also feature our breakthrough enabled technology. We feel pretty confident that we can meet the requirements. When we transition to Malaysia, we'll make what's needed from there.

We will now go to the queue. Questions will be answered in the order that they are received. Please ask one question and one follow-up question at most. We will now pause a moment to assemble the queue. Our first question will be from Colin Rusch of Oppenheimer.

Congrats on the progress. As we've seen folks like CATL introduce 4C batteries with 1,000 performance into the market. Can you talk a little bit about the competitive environment, and how important the breakthrough technology is and other attributes, obviously, the volume is an important one from a competitive perspective, but what you're seeing from your customers in terms of what they want and what's continuing to keep them engaged with you guys?

Thanks for the question. I think the main reason that our customers are super excited to work with us is the increased capacity and energy density we provide. If you look at the batteries in the market today, even if you take all the batteries out there that are actually producing the 1,000 cycles that are fast charging, our energy density is still much, much higher than anything on the market. Our current product doesn't hit the 1,000 cycles that they need and it doesn't hit the fast charge. As we add those two features to our products while maintaining energy density, that's where we see a clear differentiation from our products compared to our customer products. That is the hardest thing to get: the amount of energy density, and we feel like we can accomplish all three of those aspects. Of course, safety is also very important, and we'll continue to work on the safety aspects as well.

Okay. And then just with the factory acceptance testing, any surprises, either positive or negative in terms of what you're seeing in that first zone of testing?

No particular surprises. We are doing quite well. Actually, we have begun all the FAT work, as we said in the letter, and the video showed all the work going on. No particular surprises. There were a couple of changes, which is typically expected during this rigorous acceptance test that had to be made, which were already done on the Zone 2 equipment that I ended up showing in the video. So no particular surprises. Things are on track.

Our next question will be from Derek Soderberg of Cantor.

Ajay, I want to start with you. In the shareholder letter, it states you guys see a clear path to industry-leading yields as you move to high-volume manufacturing in Malaysia. I’m curious if we should be thinking about a specific number for yield with that commentary, be it 90%, 95% or what have you? And then just given what you're seeing in factory acceptance testing, what's the path look like for Gen 2 as it relates to overall equipment effectiveness?

Right. So good questions, and I'll answer them in two parts. The first part is our yield learning that we did here in Fab 1. Eight more days and I'll be here for a year, and the yields have significantly climbed or did climb in Fab 1, and all the learnings of where the yield losses are happening and that type of thing was done very nicely. Now we are at Gen2; we will start where Gen1 ended. We chose to stop the Gen1 line, as Raj mentioned already. Gen2 begins there, and the ramp begins from there. FAT has very rigorous requirements of CPK, which means process capabilities and achieving enough distance away from the spec so that the yields are very predictable and manageable. Yes, you can imagine targeting the high 90s for the yield for the line, but it will take a little bit of time to climb. The good news is that we are starting where Gen1 ended and climbing from there.

And then as my follow-up, Raj. You've sort of said the plan is to optimize the deployment of Gen2 lines to sort of match the timelines with demand. You clearly have a sizable revenue funnel. It seems like Gen2 is on track. Have you determined exactly how many lines you feel is optimal to have during '24? And if not, what are you waiting for? I know there's a lot of variables that kind of go into that decision. Just would love to hear your thoughts.

Yes. Look, the demand is very strong. I mentioned in previous comments that we are working with multiple smartphone OEMs, laptop customers, and wearable customers, each of whom needs a cell of slightly different form factor and shape, and our line is capable of producing them. What we are currently evaluating are the first line ramp-up performance, getting customer approvals, and simultaneously providing samples for their validation in phones and laptops. As we learn from them about the ramp of their phone models and the laptops, we will be putting in new lines keeping in mind the lead time it takes to do that. I can't comment exactly when I'm going to do that, but we are currently assessing that situation. For example, we may not have to order the whole line at once, we may order more lasers to alleviate bottlenecks or increased back-end capacity to ensure timely outputs. So I don't want you all to think of lines as holistic things we need to order one at a time. That's how we are making those kinds of optimizations. But we'll be ready for ramping in '25 with our customers.

Just to add to what Raj said, building the Fab 2, as we've shared with you, is nearly ready now to accept the Gen2 equipment. That building itself is currently ready for four lines. We've built the infrastructure, power, and other details around how that facility has come together. It is ready for four lines, and the campus itself is expandable all the way to eight lines. That is consistent with what we have shown and shared with you all thus far. That goes hand-in-hand with what Raj has indicated concerning our qualification cycles and equipment additions.

Our next question comes from Bill Peterson of JPMorgan.

I want to follow up on one of the prior questions about adding additional lines. Lines two through four, or even just adding to the first line. I guess the question is, are you going to be waiting for line 1 to be successful before you actually place orders? I assume there's pretty long lead times. So why would you actually have to place orders for the subsequent lines, let's say, two through four, in order for them to be installed next year?

Yes. So as I said, it's not a simple answer of this is a whole line lead time. There are pieces of the line that have shorter lead times, and some that have longer lead times. We are looking at those and ensuring that we have the long lead time areas covered. The short lead time components, we can wait. We are also improving these lines. As we start producing one, Ajay and his team have figured out how to further improve the performances of the lines and reduce their costs. So we want to take all those advancements into account and order accordingly, ensuring we do not spend too much money too soon, while also meeting customer demands in '25.

And actually a follow-up on that. So is $50 million sort of the right way to think about a full line? Or are there opportunities to go lower from there? That's a follow-up to that last question, but I actually have a separate question related to EVs. You've been talking about EVs for a while, at least in the context of fast charging and some of the other attributes. I believe at least in the past, the team has had an idea to maybe have at least one JDA by the end of this year. Now remind me if it was the prior management team. Just trying to get a sense of what is the optimal way you can work with OEMs? How many OEMs are you in discussions with? And when would you really want to take this to another level with a partner?

Yes, I'll address the new question and then Ajay will discuss the line question. Our main challenge has been the high demand we've been experiencing. My task has been to prioritize which OEMs to focus on first and which ones can wait. Initially, we were operating just one factory while learning about yields and trying to produce small-sized cells for our early contract customers. We worked on improving the yields for the next-generation line, then moved on to fulfilling the Army contract. Recently, we've also seen significant demand from the smartphone sector, which required us to create larger cells for quality testing. The EV market remains a promising segment, and we've begun producing cells for them as well. We've been handling all these priorities simultaneously and advancing as quickly as possible. Now that we’ve announced that we are not producing high-volume manufacturing in Fremont anymore, we can quickly increase operations at our Manesar facility. This will enable us to start working on the EV-type cells that require clean room conditions and specific materials. The discussions with the OEMs are definitely positive. The bottleneck was due to my decision to prioritize smartphone and Army cells first, as we believed that was the best short-term revenue opportunity. We are committed to advancing the EV cells in the first quarter of next year.

To answer your other question, you should keep in mind that for line 1, we are aiming for production of around 9 million to 10 million batteries, which is a universal line. As Raj stated, we are consistently improving our UPH and driving costs out of the process. Line 2 will be a similar setup, but we will also aim for slightly higher UPH, eliminating bottlenecks and reducing line costs. That’s the thought process we have for lines 2 and beyond.

We would like to work towards that $50 million range you've mentioned. Of course, I'm pushing the team to reduce the costs even further, but…

Our next question comes from George Gianarikas from Canaccord.

Just very quickly, I watched the video with Ajay. I'm curious, it looked very automated, high parallelism. So I'm assuming that you weren't operating at full tilt in terms of UPH. So when that happens, what's your confidence level that you can continue with that level of automation with all the metrology involved? What's the risk that those systems might start to break down as you speed up the process?

Yes, good observation. Yes, we were not operating anywhere near full tilt. I just wanted to ensure we were capturing videos of exactly what's going on per station, so we slowed down the line significantly. FAT will require it to run as what we call a marathon run for a specific number of hours at 1,350 UPH. That is part of the buying and qualification criteria for the line. We will continue to do that, and only after that will we give a green light to ship that line. So that's what we were doing. My confidence level regarding ensuring that the line runs without needing to stop to check the MTBA, mean time between assist and mean time between failures, is based on meeting the specs we wrote, which means the OEE must climb up to that 85%, which stands for overall equipment effectiveness. So, yes, we were definitely not running at full tilt in the video.

As a follow-up question, there have recently been discussions from China around export restrictions concerning graphite. I'm curious what you think this does to your long-term business, and also to RouteJade. How confident are you that you can continue to get graphite supplied to your existing business there?

Yes, we ourselves don't use any graphite. The silicon cells that we are manufacturing aren't dependent on that. We haven't observed any effects on RouteJade concerning graphite so far. As and when we know more about it, we'll comment. State-wise, I've just read as much as you have, and I haven’t noticed any impacts from the restrictions.

Our next question will be from Gabe Daoud from Cowen.

I was hoping we can maybe start with Fab 2. Raj, could you perhaps provide a bit more color regarding the smartphone launch? The cells coming off of those lines, would that be EX2? And with the second half of '24 launch, I guess the quality period will only be a few months if you're anticipating commercialization in '25 with multiple OEMs. Is that correct?

Yes. I showed EX2 as a roadmap for what we aim to achieve. We will be doing something in between EX1 and EX2 to start, where we will improve the cycle life and fast charge capabilities but may not push the energy density fully to its maximum. Our EX1 energy density itself is much higher than what is currently shipping in the market, so we are confidently moving forward with our technology. Ultimately, we aim to share samples with smartphone OEMs next year as soon as we are able to produce from our Malaysia line, and we plan for production readiness by the end of the year, with the goal of getting our products into phones by early '25.

As a follow-up, I noted the new vertical strategy you mentioned. Could you discuss whether some of the customers you are currently focused on include the Canaccord strategic accounts mentioned by the previous team? These are the companies with at least a $200 billion market cap. I'm trying to understand the progress of the MOU with Samsung—are you moving forward there? Is there anything you could share about the six strategic customers you previously mentioned?

Yes. This is indeed very relevant. If you consider strategics with large market caps and the capacity to ship millions of units, that fits perfectly within our vertical-first strategy. We are focused on clients who are capable of purchasing millions of cells from us for each product, not merely aggregating. This is key because each product demands a custom cell of singular shape and specific characteristics. Thus, it is vital that every product we produce ships in millions of units, as that ensures a proper ROI on our investments. These are top customers that we engaged previously, and we emphasize that we are now concentrating more strongly on those specific clients, identifying them as a richer opportunity since we need to prioritize projects that promise high volume.

Our next question comes from Gus Richard from Northland Capital Markets.

Could you provide a split of Army revenue and RouteJade revenue in the fourth quarter and possibly a little more color on how you see RouteJade's business evolving in 2024?

Sure. I can take that. In terms of the fourth quarter revenue, Army should be similar to the third quarter plus or minus a bit. The remainder should come from RouteJade. We have talked about an $18 million annualized run rate in the first half of this year, so think of it like $1.5 million per month. The fourth quarter typically trends a little stronger than that, so just a little higher maybe. That gives you insight into fourth quarter revenue and its breakdown. In terms of '24, we expect to see some growth from 2023 based on that $18 million annualized run rate from the first half. The company has a very competitive cost structure; since it is located in a remote part of Korea, the employee compensation is quite favorable. Even at that level of revenue, profitability remains comparable to that seen in large companies in the graphite segment.

And just regarding production and shipments out of Fab 1, could you provide the numbers for what you produced in the quarter and what you shipped?

The number we produced in the quarter is unclear. I think we discussed our production, but I'm not certain about the exact shipment figures or how much we need. We have kept a significant amount in inventory because we need to ensure there's enough to meet the demands of customers who have integrated our products into their designs. Some of this inventory is held to satisfy that market demand, while part of it is being used for our experimental requirements related to our EX1 and EX2, for which we need a substantial number of cells.

Our next question will be from Ananda Baruah from Loop Capital Markets.

On the PC side, I think you mentioned that PCs kind of represent volume revenue in '26. Will you start volume sampling on the PC side in '25? Also, how does AI PCs factor into the overall demand backdrop, as HP recently indicated they expect 40% of their PCs to be AI-enabled in three years? Does that play into your demand backdrop for PC10?

Yes, this is a good question. The process of customer qualification in the PC market is generally much lengthier—indeed longer than it is for smartphones—due to the rigorous processes involved in that sector. We will begin sampling in ‘24 and ramp up further in ‘25. However, by the time we achieve mass production with meaningful volumes of PCs, it will be ‘26. Some PC manufacturers might actually bring their production forward, perhaps in ‘25, utilizing our smartphone-like cells. Your observation on AI PCs is critical; the increased battery demand from AI usage is palpable since applications like AI can aggressively drain battery life. This has led to much interest from PC manufacturers looking for higher-capacity batteries. We are optimizing our recipes to meet those specific needs, particularly for energy density, while perhaps sacrificing less on fast charge capacity. This represents another exciting market for us given the surge of AI applications in edge computing.

And then just a quick follow-up. Ajay, you mentioned yields, but it'll take a bit to get to, I believe you said, the high 90s. Do you think you would be at the 90% yield when volume production starts in ‘25 for smartphones?

Yes, absolutely, Ananda. The current plan indicates we will approach high 90s yields before the actual ramp begins on line 1, so yes, FY ’25 will likely see us in the high 90s.

Our next question will be from Chris Souther from B. Riley.

I wanted to get more clarification regarding the focus on specific higher-volume customers. Does this mean there are particular subsectors that are quite small at present but might evolve into high-volume opportunities in the future? How do you evaluate potential when some prospects are rather cutting-edge?

Yes. From my experience over 30 years in the consumer electronics chip business, at this stage of the company, it is crucial that we prioritize a small number of customers that can drive significant volumes while satisfying their unique requirements—be they fast charge, cycle life, energy density, form factor, or charging and discharging interactions. Once we nail those needs and successfully scale with a few of those high volume customers, we will achieve the growth necessary to establish a presence in broader markets. That's the strategy: to focus on vertical markets first, achieve significant volume from that, provide the necessary deals to pay for our manufacturing lines, and then extend into the broader market. I expect that over time, around 80% to 85% of our business will come from large verticals, while 15% to 20% will originate from a broader spectrum.

Our next question will be from Tim Moore from EF Hutton.

My question revolves around the closing of your recent acquisition transaction. When do you anticipate it will be fully integrated to achieve the forecasted cost savings? Additionally, how many months might it take to kick off battery development cycles there?

Yes. To clarify, the cost savings we’ve discussed depend largely on manufacturing capacity and utilization rates. The shift to coating capacity and the associated cost savings are linked to how the manufacturing ramps up. Therefore, the bulk of those cost savings should start materializing in 2025 and beyond. We are keeping RouteJade as a separate entity primarily for their existing operations. Our focus remains on leveraging their coating technology to enhance yield improvements and cost reductions within our manufacturing processes as we execute our plan. The execution on RouteJade's integration is going according to expectation for ramping up in manufacturing in 2025.

Regarding the accuracy Meditech Mini, how many months in advance would you typically recognize revenue before it starts selling in CVS, Walgreens, and Walmart?

Our revenue recognition is not contingent on their shipments. We will recognize revenue after fulfilling all of our obligations as we supply batteries to them. We expect those to hit the market sometime next year. I don't want to be too specific on that timeline, but that’s what we know.

On the last earnings call, you mentioned that capital expenditure next year will exceed this year, which makes sense given your strategic expansions. Can you provide any insight on how much higher CapEx might be next year, considering we are only about seven weeks away from year-end?

Currently, we are not guiding on next year's CapEx, but we will manage our expenditures tightly and spend as necessary. At this time, we are not expecting CapEx to increase year-on-year for next year, and we will keep track of it closely.

There are no further questions at this time. With that, I'd like to turn it over to Dr. Raj Talluri for closing remarks.

Yes. Thank you all for listening to our earnings call, and thank you for all the great questions. Looking forward to talking to you next quarter. Thank you.