Thank you for being here, and welcome to the Enovix Corporation Fourth Quarter and Full Year 2023 Earnings Conference Call. As a reminder, today's program will be recorded. Now, I'd like to introduce your host for today, Charlie Anderson, Senior Vice President of Investor Relations and Corporate Strategy. Please proceed, sir.

Thank you. Hello, everyone, and welcome to Enovix Corporation's fourth quarter and full year 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 fourth 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 this conference call all contain forward-looking statements that are subject to risks and uncertainties. These forward-looking statements are based on current expectations and 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, February 20, 2024, 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 thanks to everyone for joining us today. I'm going to start with a few key remarks, and then we'll show you some new video of our Fab-2, featuring Ajay. Ajay is currently in Malaysia, and he will provide an update on manufacturing there. After that, Farhan will discuss some financials and the outlook before we open the floor to questions. We had a strong finish to 2023, and we've established the groundwork for scaling up in 2024. First, we reported record revenue of $7.4 million in Q4, surpassing our expectations. Secondly, we are nearing the completion of our factory acceptance testing, and much of our Gen2 equipment is now in Fab-2 in Malaysia, set to produce the first batteries in April. It's exciting to witness this progress. Third, we made significant strides with our customers in both the smartphone and EV sectors. Last quarter, we hosted executive management teams from two leading Chinese smartphone OEMs at our Fremont headquarters, where we had productive discussions on collaboration to develop batteries for their phones. Additionally, we've signed a development agreement with a prominent automaker to validate the advantages of the Enovix cell architecture for EV batteries. This expands the addressable market for Enovix technology, and we have a robust pipeline of additional prospects in this area. Lastly, we are confident in achieving 1,000 cycles on a smartphone-class battery, and we look forward to sampling next quarter. Reflecting on our accomplishments last year, we started as a new management team operating a costly, low-yield California factory with a product portfolio that was not well aligned with key large customers and target markets. Now, we exit the year with a manufacturing base in Malaysia, prepared to produce industry-leading batteries, a seasoned team in Korea that has shipped batteries for over 20 years, and strong alignment with our customers, which has provided us in-depth knowledge and detailed product specifications to craft category-leading products for the smartphone market. We are now effectively collaborating with the world's largest smartphone OEMs at various levels. These companies are enthusiastic about leveraging our architecture to meet the increasing demand for power-hungry applications driven by the AI megatrend. I'll present some data on this shortly, but first, let's discuss our goals. Our focus this year is to position ourselves for a significant revenue increase with upcoming smartphone launches. Firstly, we must demonstrate high-volume manufacturing on our Gen2 equipment in Fab-2, Malaysia. I know seeing is believing, so we'll present a video of Fab-2, featuring Ajay, filmed in the last few days that illustrates our progress. Ajay will also join us for Q&A from Malaysia, and though it may be early for him, he's ready to respond. So, operator, let’s roll the video. The video was impressive. As you can see, we have tremendous confidence in Fab-2. We have achieved a lot in a short time, and I’m proud of what the team has accomplished. Besides validating manufacturing, this year we need to deliver samples of batteries designed for smartphone specifications, focusing on fast charging and high cycle life. I'm pleased to report that our global R&D teams have made noteworthy advancements recently, and we expect to send our first samples of the EX-1M for mobile next quarter. By year-end, we’ll introduce an enhanced version, called EX-2M, which will also be ready for sampling. These will be truly groundbreaking products, being the first smartphone batteries, to my knowledge, featuring a 100% active silicon anode while delivering 1,000 full charge and discharge cycles, fast charging, and increased energy density compared to current market offerings. The demand for high energy density is crucial for the smartphone industry, representing a substantial $10 billion-plus addressable market. Last quarter, we engaged Tirias Research — a team I'm familiar with from my tenure at Qualcomm — to assess the impact of emerging AI applications on smartphones. The results were staggering. On the left side, the graphic displays the global GenAI output forecast in billions of video and image frames. In 2023, we anticipate 15 billion frames; by 2024, it rises to 59 billion; and by 2028, we expect a staggering 2,500 billion frames generated. Most of these will occur on battery-operated devices — phones, PCs, laptops, etc. The middle section reveals intriguing data on battery consumption per hour for various applications. On the left, you find non-AI conventional applications; on the right, AI applications like 4K and 8K video, which involve extensive upsampling using AI technology. It’s remarkable that ChatGPT consumes more battery than running YouTube on your phone. This underscores the necessity for higher energy density batteries, as echoed by our customers' need for such enhancements. I've recently seen new phone launches from some Chinese OEMs focused primarily on their AI capabilities, and Samsung Galaxy advertisements reflect a similar trend. The direction is evident. With our product roadmap and customer partnerships, we are in an excellent position to help the smartphone industry embrace a new era of mobile computing. Additionally, we are excited to announce our first deal in the EV sector. Now, I’ll pass it on to Farhan, who will summarize our financials and outlook. Farhan?

Thanks, Raj. So all the relevant financials are in our quarterly reports; I won't go into the details, but I'll just do a quick recap of the results and the outlook. For Q4, we delivered revenue of $7.4 million, well ahead of our expectation. We ended the quarter with about $307 million of cash and equivalents. Q4 CapEx was about $29 million. About $27 million was used in operations, and about $10 million of cash was used in the acquisition of Routejade, net of the cash that we acquired as part of Routejade. As a reminder, we are accelerating the depreciation of Fab-1 equipment post our decision to stop manufacturing in Fab-1, as we decided to convert it for product development purposes. Our Q4 results included $18.5 million of accelerated depreciation. $6.2 million of this was in COGS, $12.2 million of this was in R&D, and $0.1 million was in SG&A. In Q1, we expect a similar amount of accelerated depreciation, but most of it will be in R&D expenses. Now, turning to our guidance, for the first quarter of '24, we are expecting revenue in the range of $3.5 million to $4.5 million. Now, there is some impact, a meaningful impact to our Q1 guidance because of the war in the Middle East, which is causing a longer time for the ships to go from Korea to Europe. We expect for Q1 an adjusted EBITDA loss of $24 million to $31 million and expect non-GAAP EPS between a $0.29 loss and a $0.35 loss. I would like to note that our non-GAAP EPS loss does include the impact of the accelerated depreciation that I talked about, which is about $0.10. And with that, I'll now turn to Raj.

Okay. Thank you, Farhan. In closing, I'm super excited by all the work we've done in '23, and we've set the framework for our business to scale in the years forward. And we have significant proof points to deliver in '24. And I'm super excited by, as you can tell, all the developments we have going on in our manufacturing fabs and executing to these key milestones. So with that, I'll open up for questions.

We will now begin the Q&A session. Please note that this call is being recorded. Before we go to live 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, will management address the current and future status of government contracts for batteries? Is there still a near-term eight-digit revenue opportunity? Or has management totally abandoned this?

Yes. So, very good question. As we did last quarter, we continued to deliver batteries to the Army contract that we have, which are BrakeFlow-enabled safe batteries that the Army will use in vests and so on. We expect to continue to do that through this year. As we do that, these batteries are put into different kinds of tests by the Army and a lot of qualification processes and so on. Once that's done, we do expect that they will end up in higher volume production, and we will have a good business opportunity there. Also, with the acquisition of this company, Routejade, they have very good batteries that are actually being sold to the Korean military, and we see opportunities to market those batteries to the U.S. Army also. So, yes, we do expect to continue to do that.

The second question is, what is happening with the former production space in Fab-1 now that the Gen1 line has been shut down?

Yes. Thank you for that question. So Fab-1, we are not doing high-volume manufacturing, but we are using it right now to make samples to give — like EX-1M and EX-2M and so on, to give to our smartphone customers to sample and validate the technology before our Fab-2 is ready. As I mentioned, we expect to produce cells from Fab-2 in Malaysia in April timeframe. So we are actually using the current fab in Fremont for that. Also, with this new EV opportunity, we have — which we expected that we will need a clean room, a dry room, and a facility to make those cells here, which we're going to do here in Fremont. So it continues to be a good R&D facility for us.

Our next question comes from Colin Rusch with Oppenheimer. Please unmute your audio and ask your question.

Thanks so much, guys. As you've gotten deeper into the customer conversations and testing on the smartphone side, can you talk about the number of SKUs you're expecting to make in the next 18 to 24 months to serve those customers?

Yes. Thank you for that question, Colin. So what's happening right now? I'll give you a little bit of color, taking that opportunity of that question. So what's happening right now is that we've got very detailed specifications from multiple customers. These are 20 to 30-page documents on how the battery is tested, different temperatures, size requirements, safety requirements, etc., from multiple smartphone OEMs. So we are now building samples and sampling — and we will be sampling them soon to these customers with the requirements that they've given. And what we do is, we test the batteries to those specifications so that when we give them the cells, we are pretty confident that they will pass. It's something that I've always done in my past — to ensure we understand the customers' testing requirements, test them, and then give it to them. What we expect to happen is, after they pass the technology qualification, we expect to get different dimensions and capacities, like 5,000 amperes or 6,000 amperes based on what smartphone it's going into. Each customer is a slightly different size. If it's going to a flip phone, it's one size; if it's going to a candy bar phone, it's slightly different. And we will make those particular form factor batteries from our Malaysia fab, get them those samples, they go through the rest of the qualification, and then you get to high-volume production next year. It's hard to tell exactly how many different shapes we'll need to make because we are sampling for multiple customers. I’d say probably in the single digits is what I think. It shouldn’t be too many because I do think that a lot of customers will try to use a similar kind of cell because the phone form factor is kind of very similar between customers.

That's super helpful. And then, given the opportunity in mobility, there's certainly a lot going on in terms of vehicle design, pack design, and given the safety profile that you guys have and the potential for fast charge. Can you talk a little bit about your expected pack size and how that might look for some of these vehicles as they look to optimize both space and energy density in the vehicles? Are we talking about 60 kilowatt hours per vehicle? Or are we talking something more like 80 kilowatt hours or 90 kilowatt hours?

Yes. Good question, Colin. So what — just to be clear, what we are doing now is working with — what we talked about is one OEM that's interested, and there are others we are talking to on proving out the value proposition, right? Proving out that we can control swelling, proving out that we can charge fast. Exactly what kind of cells they would be, how many there would be, what kind of EVs they would be? It's too early to tell. We will continue to update you on milestones as we get there. At this point, we're just proving out the technology.

Yes. The only thing I would add is that they will have our architecture, our unique architecture. What's common is that all of these cells that we are working with automakers are with our unique architecture and will have fast charge as the unique differentiator.

Thanks so much, guys.

Our next question comes from Bill Peterson with JPMorgan. Please unmute your audio and ask your question.

Yes, thanks for taking the question. Maybe just to piggyback off that last question, it sounds like you said the key focus area will be fast charging. But can you just shed some light on some of the key milestones and timelines for this? What are the contributions and commitments from Enovix in terms of sampling and testing? I guess, is there further appetite for Enovix, as well as resources as well to actually ink any additional agreements? Or should we just think of this single agreement for now?

Yes. We hope to get samples out this year. That's our goal. We are working with other OEMs, too. But I can't really comment much further than that. It's kind of early stage, and we'll keep you updated as we make progress.

Okay. Second question. So when we think about EX-1, EX-1M, and EX-2, I guess, what are the key changes you're making on the material side? Are the formulations and manufacturing processes fixed for EX-1M and EX-2? And I guess, if not, the formulations for EX-2, if they haven't been fixed, what are the issues or performance gaps you're looking to address before locking in the material choices and process? Just trying to get a sense for how mature these are at this stage.

Yes. Good question. Basically, if I look at EX-1M, it's built on top of what we have done in EX-1, which is adapting that technology to meet the requirements of the smartphone market. When I say the requirements for the smartphone market, there are a few key requirements. One is clearly safety. People really care about safety in phones. As you know, we have spent a lot of time on that, and that's one area we address. The second area is cycle life. Our previous EX-1 batteries ran up to 500 cycles. Our target in EX-1M is 1,000 cycles, which is essentially doubling that, and that's a significant increase. The third is the ability to charge really, really fast. When you have a smartphone, particularly with these AI applications, a whole day of battery life is becoming increasingly difficult. So when the battery life goes down, people want to be able to charge and get to 15%, 20%, or 30% charge so they can continue using the phone for the rest of the day. This is a very important concern addressed in our development. To charge quickly and do that safely while ensuring long-term battery health is key, and we feel good about it now. The third point is increasing energy density. We have now looked at all the different phones currently in the market and believe we can provide a competitive advantage. Each customer may have slightly different priorities: some may prioritize cycle life while others may favor energy density. We are currently finalizing the target specifications for EX-1M and expect to sample these batteries from our Malaysia factory in April. EX-2M builds upon this development and will continue to increase energy density. We've seen very promising results, so we're optimistic about achieving these goals.

Thanks Raj.

Our next question comes from George Gianarikas with Canaccord. Please unmute your audio and ask your question.

Hi everyone, thanks so much for taking my question. I'd like to ask about your material supply chain. Earlier in the quarter, you announced an agreement with Group14. And I'm curious, first of all, how diversified your silicon supply chain is, and how extensive are the choices by handset vendors or device vendors in making that decision? Or is that purely a decision that Enovix will make in terms of which silicon you put into your batteries? Thank you.

Yes. If you look at producing a battery that increases energy density but also meets safety and performance requirements, it’s crucial to understand that the formulation involves more than just the anode. It includes the silicon anode, the cathode, and particularly the electrolyte. Within the battery, the electrolyte must behave correctly at the interface with both the cathode and the anode while passing lithium ions effectively. Choosing the right materials such as cathodes, anodes, and electrolytes is a significant part of our intellectual property at Enovix. We are constantly seeking the best materials, and we have been excited by the results from Group14. Supply diversity is also a priority for us. Ultimately, we will find the right combination of materials based on feedback from our customers. This will determine the optimal blend for specific applications.

Thank you. And just as a follow-up, I'd like to ask about your timelines on the FAT and SAT testing. Your confidence level in terms of getting out samples for the Agility Line in the second quarter — I know that on a recent podcast, you discussed seeing a little bit of a push-out in some of the timelines here. Can you just kind of reiterate and give us confidence that you can get those samples out in the second quarter? Thank you.

Yes. I'll answer a little bit at a high level, and Ajay, feel free to add. I know he's in Malaysia. But we feel confident that we're going to get samples out in the April timeframe to our customers. We did announce some delays on FAT for one of the zones. You have to remember that these are very complicated systems we're working with. One aspect both Ajay and I, along with the leadership team have emphasized is that we will not cut corners. That applies to FAT, SST, requirements, and yield metrics we need before accepting these machines from our suppliers. While this has caused some back and forth with suppliers, we're optimistic that everything is within reach, and the machines we have received thus far meet our expectations. Some are already in Malaysia, while others are on their way, but we are committed to getting samples to customers, despite minor pushbacks in certain zones.

Yes. Just to add to that, yes, feeling confident about how the machines are behaving. I think we shared some data as well during the podcast. So yes, feeling confident that we'll definitely get samples out from the Agility Line here in Malaysia in Q2.

Our next question comes from Jed Dorsheimer with William Blair. Please unmute your audio and ask your question.

Hi. Thanks for taking my question here, guys. Raj, you've talked about some of the performance trade-offs between EX-1, EX-1M, and EX-2. I was wondering, how should we think about the value creation in terms of some of those trade-offs? And what I'm really trying to get to is ASP differences between the different products. And then I have a follow-up.

Yes. Jed, it's really based on the end markets. I think our view is that when you go into applications like smartphones and laptops, you need to get to 800 cycles, 1,000 cycles in that range. If you think about it, if you have a phone, you're going to charge it every day, so you're looking at 350 charge-discharge cycles per year. Therefore, keeping the phone for 2.5 to 3 years, you quickly reach 1,000 cycles. For wearables or IoT devices, you might keep them for fewer years or not charge them daily, so you can manage with fewer cycles. We decided to pursue the smartphone market aggressively, aiming for up to 1,000 cycles as our target. If some customers want an 800-cycle device, that's acceptable, but our aggressive goal is 1,000. ASP will depend on what the customers value most. There are must-meet requirements, such as fast charging, cycle life, and safety. Once we meet those, we can command premium prices based on energy density. Some markets may value cycle life less, allowing us to focus on energy density to achieve higher ASPs. Therefore, it ultimately depends on the end market and customer needs.

As a follow-up, I know on wearables, we’ve talked about Apple Watch in terms of the value of the additional battery life not being as great as that of a phone. But I'm curious; when we look at Apple Vision or when we look at something that only has two hours of battery life, certainly gating the adoption of that product, how do you think about the value and therefore the gating function of the battery to help those markets open up to larger volumes?

Yes, absolutely. There are more and more applications coming out that need much higher energy density. I am one of those proud owners of Apple Vision Pro. I love the device, but I hate the 2-hour battery life. The single biggest problem with the device is the battery life. It's a phenomenal device, and I think the reason it’s so great is because of the performance delivered by the processors, memory, and displays. There's even an IMAX app on it that makes you feel like you're in an IMAX theater, but the battery life is insufficient. Therefore, the ASP premium is there for markets that need it. The Vision Pro is a $4,000 product, and people would pay extra for doubled battery life. I believe there are many coming products that will face similar issues. Performance and user experience from advances in processors, memories, displays, and cameras will drive technology demand, and better batteries will deliver an entirely new opportunity for improved experiences.

Our next question comes from Derek Soderberg with Cantor. Please unmute your audio and ask your question.

Hi everyone, thanks for taking the questions. I wanted to start with, on the slide deck, it looks like you guys have the goal of multiple smartphone launches in 2025. I'm wondering what you're going to need from a production capacity standpoint to achieve this. Can you do that with a single line? Do you need two lines? Any detail on that would be great. Thanks.

Yes. I think it's important to explain how the process works. I often get asked this question. If you think about where we are in our journey, we now have a recipe with EX-1M that we feel pretty good about and meet market requirements. Our factory is coming online now, and we feel confident about getting samples in April. So what happens next? We will give these samples to our customers. They will test them and provide feedback on any optimization needed for dimensions and size. Then, we will make those adjustments and remanufacture the samples. Typically, customer evaluations last 9 to 12 months, since our target is a 1,000-cycle battery, which means they need to charge-discharge for 1,000 cycles to ensure everything is fine. The volume we need can depend significantly on how these evaluations go. We have one line that can produce approximately nine million batteries a year right now, and we'll watch customer qualification closely while deciding how much additional capacity may be needed — we’ll keep updating you on this as the year progresses.

Got it. And as my follow-up, Ajay, you spoke a bit about yield on the last podcast, and you mentioned a bit about throughput just now on the video. From your perspective, how is the equipment as a whole? I know you guys did proof-of-concept tests. Just curious your thoughts and confidence level around everything together, hitting sort of that 1,350 UPH metric and share any incremental details on how throughput is tracking as well? Thanks.

Sure. Yes, good question. The yields, as part of the SAT, as Raj mentioned, we are doing some rigorous testing. For example, there's about 25 to 26 critical to quality parameters that we track — we're ensuring that the CP and the CPK levels are more than 1.0 CPK across all steps. We're also fine-tuning this - to aim for 1.33 CPK. We feel confident that, once the SAT is cleared, the yields across the critical processes in the line will not only hold, but will also start at a high point. We have been learning from our experiences with Fab 1, and we've made sure that the design accommodated what we couldn’t achieve previously. On UPH, Zones 2 and 3 are the battery lines that will run at 1,350 UPH, while Zones 1 and 4 are farms, and we can adjust accordingly to meet this target. Overall, we feel confident about getting there.

Our next question comes from Anthony Stoss with Craig-Hallum. Please unmute your audio and ask your question.

Hi Raj; a lot of my questions were asked. Now that you've had Routejade under your belt for a while, can you update us on what you've learned from Routejade? And then also just to get Farhan in the action here, just your view on OpEx for March and where OpEx trends for the rest of the year.

Yes, Routejade. I visited the factory a few months ago. We are super thrilled with the acquisition. It’s really phenomenal. This company has been making production batteries and shipping them for over 20 years. Their expertise really complements what we have in the company. They understand battery manufacturing, safety, and different end markets. More importantly, their coating expertise is excellent. When you coat properly to the right specifications, it makes it much easier to cut with lasers and stack it. It's crucial to control incoming material quality and specifications; that has been a challenge in Gen1, relying on third-party coaters who weren't as motivated to coat to our needs. Now we are using their capacity for Ajay’s FAT and SAT, and when that material comes out, we can quickly validate coating and laser cutting quality. The second significant insight we’ve gained is that the team at Routejade excels at making high-current batteries, capable of powering electric motors and military applications. That adds significant value to our portfolio. We also have the capability to produce non-standard shaped batteries due to their lamination and stacking capabilities. We have some customer overlap and are exploring marketing opportunities for both silicon anode-based and graphite-based batteries. We intend to spend more time growing revenue from Routejade as one unified team, which is an exciting opportunity.

Yes, touching on the OpEx side, from Q4 to Q1, it should be at a similar level. From Q1 to Q2, there should be a decline due to the $18.5 million of depreciation that we talked about. The actions we have taken in Fremont will bring further benefits. So, from Q1 to Q2, you should expect a slight decline in OpEx. For the year, we should hold it steady, with a slight increase towards the end of the year. In terms of EBITDA for the company, it should resemble what we had in '23, remaining fairly steady throughout the year.

Very good. Best of luck, guys. Thank you.

Our next question comes from Gabe Daoud with Cowen. Please unmute your audio and ask your question.

Thank you. Thanks, everyone, for all the prepared remarks and Ajay for the great video. Raj, I was hoping we could go back to EX-1M and EX-2M. There has already been a lot of discussion around it, but just curious if you could quantify what the energy density targets are for each and just how that compares to leading-edge mobile phones in the market today?

Yes. We have not put out exact precise targets, mainly because we are determining how to balance energy density, cycle life, fast charge, and safety. It will definitely be higher than what is in the market today. We have put some slides in our investor deck highlighting where we expect EX-2M to land. However, exactly where EX-1M will land is a collaborative decision with our customers. It's not solely about one parameter, rather the integration of all five factors that we focus on. We are confident it will surpass current market offerings. We’re just ensuring we develop the right batteries according to customer needs.

Yes, that makes sense. Certainly a lot of parameters you need to solve for, depending on the customer. As a follow-up, very clear on when EX-1M and EX-2M are expected to be shipped for customers to sample. But when will the cells actually be coming off the high-volume manufacturing line? I guess I'd imagine that some customers would want to see cells off of that line as part of the qualification process too. Is that within the nine to 12-month window that you talked about?

The short answer is yes. The good news is that our agility line and the high-volume manufacturing line share the same modules. Therefore, there’s a lot of similarity between them. Our expectation is that when customers receive samples from one line, moving to the other will require a short cycle time. They are essentially the same machines; just at a larger scale. However, the timeline for qualification will depend upon the phone levels of qualification. When speaking with customers, they say that depending on how good the initial samples are and where they are positioned, the qualification can take anywhere between 9 and 12 months, and that is what we're working toward.

Okay, got it. Great. Thanks, Raj.

Our next question comes from Ananda Baruah with Loop Capital Markets. Please unmute your audio and ask your question.

Yes, good afternoon, guys. Thanks for taking the questions. I guess the first one may be for Ajay, if you're still online. Just to the earlier question about yields. Is there a useful way to think about where you guys think yields in Fab2 will be in April, May when you start putting out legitimate samples? And are there yield targets through the year as well? And I guess I have a quick follow-up, but what's the value of the yield target that you guys have as well?

Good question, Ananda. All the learnings and root cause analysis from Gen1 yield with the ramp-up has helped us design Gen2. So we will start at the yield level where we concluded Gen1. We’ve made sure the design accommodates issues we experienced with Gen1. We’re expecting decent yields initially, primarily driven by CPK values across various processes, typically testing above 1.1 to 1.2. There are multiple yield points across the line, and we anticipate achieving upwards of 90% yield on the Gen2 line within three quarters. This is our target.

So that's super helpful. Thanks.

Yes, that's the right number. This is consumer products, right? We’ve all been involved in this for many years. We've got to reach high yields, ideally aiming for the high 90s. Fortunately, we have determined that we can command prices that reflect our unique value. Ultimately, we must reach those high yield numbers.

Our next question comes from Chris Souther with B. Riley. Please unmute your audio and ask your question.

Hi, guys. Thanks for taking my question. I just wanted to follow up on — you mentioned a nine to 12 month timeline to qualify for some of these wins. Is that after EX-1M is already in customers' hands, or are we already in that nine to 12 months timeframe based on some of the earlier sales supplied to these customers? Should we think about a lead time between design in and launch?

Yes, that's after we deliver the samples from our factory in April. What we have previously done really helped them understand our technology. However, the product that's targeted for cell phones is the thousand-cycle fast charging product which we want to sample in April. This is when you can think of the timeline beginning. Typically, my experience shows that we will get to an initial model. There will be technology evaluations where they will test the battery independently. That will take some time, then they will actually incorporate it into an actual phone model, and that process will unfold. The total period for qualifications is approximately nine to 12 months. The precise design win will come closer to high volume; they don’t decide that until right before. The good news is that once you pass the technology qualification and are included as a vendor, subsequent models can be integrated faster as you’re already on board.

Understood. And then, maybe just on the Routejade contribution in the fourth quarter, can you update us on what the run rate is for that legacy business? It seemed a little stronger than I had been expecting at least?

Yes, in the fourth quarter, Routejade's business tends to be stronger due to seasonality. The fourth quarter generally represents a peak, while the second quarter is normally the low point. This year, we saw significant business towards the end of '23 and the beginning of '24, and a lot of this got shipped in '23, which contributed to the stronger output in Q4. For the first three quarters, you should consider it with an annualized run rate at about $18 million, with fourth quarter being exceptionally strong.

Our next question comes from Tim Moore with EF Hutton. Please unmute your audio and ask your question.

Thanks. Most of my questions were already answered. Regarding the 90% yield goal commentary, can you give us a rough sense of the timing roadmap for potential revenue run rate? When you look out to the December quarter or the March quarter next year from the Fab2 sample production, if all goes well any rough thoughts on what the quarterly revenue ties could look like a year from now?

As Raj mentioned earlier, we are taking it one quarter at a time. Once we establish production ramp timelines, we will provide further updates. We previously mentioned that we anticipate being in smartphones in '25, which implies a revenue ramp associated with that. We aim to keep everything aligned as we progress.

Yes, we will sample products from our Fab2 in April. Ideally, we expect some IoT customers to transition to production earlier in '24, but the smartphone production accesses primarily in '25. This is the framework for our operational outlook at this time, and once we validate technology and gain customer acceptance, it'll be much more promising.

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. It has been a really great year in '23 recap, and I’m super excited about where we are in ‘24. I look forward to talking to you guys next quarter. Thank you.