Thank you for standing by, and welcome to the Enovix Corporation Fourth Quarter 2025 Earnings Conference Call. As a reminder, today's program will be recorded. And now I'd like to introduce your host for today's program, Robert Lahey, Head of Investor Relations. Please go ahead, sir.

Thank you. Hello, everyone, and welcome to the Enovix Corporation's Fourth Quarter and Full Year 2025 Financial Results Conference Call. With me today are President and Chief Executive Officer, Dr. Raj Talluri; and Chief Financial Officer, Ryan Benton. Raj and Ryan will provide remarks followed by Q&A. 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 various 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 find these materials on our website at ir.enovix.com. All statements made on this call are as of today, February 25, 2026, and we undertake no obligation to update them, except as required by law. Additionally, during the call, we may reference non-GAAP financial measures. You can find a reconciliation to the most directly comparable GAAP measures in the materials posted on our Investor Relations website. With that, I'll turn the call over to Raj.

Good afternoon, everyone, and thank you for joining us. The fourth quarter represented continued progress as we transition from qualification into early commercialization across multiple end markets. First, we continued advancing smartphone qualification for the AI-1 platform with our lead mobile customer. Second, engagement expanded across smart eyewear and other AI-powered devices. We view smart eyewear as an earlier commercialization pathway for AI-1 due to lower qualification barriers and thresholds. We are currently preparing production to support initial high-volume demand from our lead smart eyewear customer. Third, defense and industrial programs continue to provide revenue, operational validation, and manufacturing execution experience as we prepare for consumer scale production. Finally, we ended the year with a strong liquidity position, giving us flexibility to execute our commercialization roadmap while maintaining disciplined capital allocation, including a recently authorized share repurchase program. Overall, we believe 2025 positions us well for the next phase, moving from qualification towards commercialization across smartphones, smart eyewear, and additional defense applications, and we'll walk through that progress today. For the full year 2025, revenue grew 38% year-over-year to $31.8 million, with defense shipments remaining our largest contributor, and batteries for naval munitions specifically being our top product in Q4. Full year non-GAAP gross margin improved to 23%, reflecting higher production volumes and improved mix shift towards higher-margin defense batteries following our April 2025 asset acquisition. We ended the year with $621 million in cash, cash equivalents, and marketable securities, supporting qualification completion, commercial scale-up, and additional potential strategic transactions. To support this next phase, we strengthened our operational leadership. Kihong Park, or KH, as he prefers to be called, now leads our global manufacturing organization, bringing decades of battery production experience and deep operational knowledge from our South Korea platform to our Malaysia scale-up efforts. We also welcomed Ed Casey to lead advanced manufacturing engineering, adding significant expertise in scaling complex high-volume manufacturing environments across global networks. Together, this leadership alignment reinforces our focus on manufacturing execution as we prepare for high-volume production. We continue to improve yield and throughput across Fab2. As we discussed in our previous call, Zone 1 laser dicing remains the primary rate-limiting factor, and we are methodically addressing that constraint through process optimization and alternative dicing approaches. We believe in our ability to unlock higher production rates as we transition towards commercialization. In 2026, we are capable of qualifying other new products and customers in the very production line they will use and meeting demand for smart eyewear customers. Our overall company focus remains on disciplined execution, advancing smartphone qualification while expanding into adjacent markets that support earlier revenue and manufacturing scale and leading in smart eyewear markets with our silicon battery shipment. You'll see how these pieces come together through today's presentation. Now let's talk about markets. Last quarter, we introduced this framework for outlining the end applications where our technology can create a durable moat. The smartphone market represents the fastest path, the large scale, and is ideal for our technology. An independent study from Polaris Labs previously validated our energy density leadership in smartphone batteries. And this quarter, we extended the validation through a second apples-to-apples comparison against the leading competitor using identical methodologies. The results confirmed that AI-1 delivers a meaningful volumetric density advantage compared to commercially available silicon-doped lithium-ion batteries. We expect AI-2 and AI-3 to further expand our technology lead with performance gains well beyond historically industry advancement rates. This quarter, we updated this slide by breaking out smart eyewear and drone applications as distinct growing addressable markets where our engagement has progressed. Smart eyewear adoption is presently accelerating as AI workloads migrate to compact always-on devices. We expect to ship our first smart eyewear batteries for use in AI/AR devices in the second half of 2026. Exceptional growth in this market is expected to continue throughout this decade with display-enabled architectures that significantly increase power demand and require higher energy density for constrained form factors. We believe the smart eyewear battery TAM could exceed $400 million by 2030, and we are targeting meaningful participation based on early engagement with key partners and strong technical suitability. Drones represent another priority area of focus where we see an attractive TAM and a strong competitive advantage. Western drone platforms, both defense and commercial, are increasingly prioritizing higher energy density, extended flight time, and supply chain diversification. This battery segment is projected to be approximately $1.5 billion this year. Breaking these markets out reflects growing conviction that we are well positioned across multiple high-growth platforms. With that context, let me walk you through our smartphone qualification progress and the defined pathways we see towards commercialization. Turning to our smartphone commercialization plan. We remain engaged with 7 of the top 8 global smartphone OEMs by market share, and validation efforts have expanded this year with multiple leading OEMs, including those serving the U.S. market. Our near-term focus, though, remains on 2 Asia market leaders, with Honor being our lead customer. We commenced their formal product qualification process in the third quarter of 2025. Most of the requirements have now been met, and cycle life testing remains the primary gating item to complete qualification and move into system integration and production planning. Because cycle life testing is often misunderstood, particularly for silicon anode batteries, let me spend a minute explaining what these tests actually measure and why they matter for real-world smartphone usage. The key point, and what we want to clarify next is that cycle life results are complex and depend heavily on test protocols, which is especially important when evaluating next-generation silicon anode technology. When we say cycle life testing, we are referring to multiple tests based on different charge and discharge rates, or C-rates. This is a standardized measure of how quickly a battery is discharged relative to its total capacity, where a 1C rate means the battery can be fully discharged in 1 hour and a 0.2C rate means battery discharge in 5 hours. This slide illustrates relative C-rates across common smartphone applications. The highest power-consuming activity is video recording, which requires approximately 0.17C discharge rate. We include a host of other popular consumer applications as well as scenarios for running multiple applications simultaneously to account for use cases such as using ChatGPT while also watching a Netflix movie. When we refer to our lead customers' primary qualification requirement of 1,000 cycles, that is based on a rate of 0.2C. As you can see that everything below this level, which is why smartphone and smart eyewear OEMs rely on this test to ensure batteries provide a positive experience for a wide range of consumer usage patterns. A test purely based on this rate would take a year to complete though. So most companies compress the test time to 4 months by using an accelerated 0.7C rate for a majority of the cycles where the battery is fully discharged in 1.4 hours. Smartphone OEMs also included in their qualification process a secondary requirement of 800 cycles for just the 0.7C cycles, though this C-rate is well beyond any single app consumption we are aware of. For the parts shipped in December, customer qualification testing for cycle life began in January. This testing is progressing in parallel under customer control protocols. On this slide, you can see how batteries we send to our lead customer perform in our 0.2C cycle test. We made improvements over our initial version submitted in July, and our internal test indicates we are now likely to exceed the requirement of 1,000 cycles at 0.2C rate. This is a significant achievement that is indicative that our product is approaching readiness for integration into commercial products. However, these same batteries are not currently on track to exceed the accelerated 0.7C target. As it is the first time a 100% silicon anode smartphone battery has been brought to the market, we are working closely with our customer on alternative pathways for testing that are more suitable for silicon anode batteries. So while customer testing ultimately determines qualification, this internal data set gives us increasing confidence that the current batteries are tracking towards the required performance. Because there has been no 100% silicon battery qualified in a smartphone, there are no defined testing protocols for qualification. Based on current test results, we're discussing multiple pathways to qualification with our lead customer. The first scenario is approval based on our 0.2C results and acceptance of the 0.7C cycle life below their current requirement. A second scenario involves the adoption of a new accelerated testing protocol tailored for silicon anode batteries. Finally, we're also continuing to develop improved electrochemistry variation to hit the 0.7C target. While we believe our battery platform is ready for deployment, we also understand that we are entering the largest consumer electronic market in the world. Customers appropriately maintain a high qualification bar for new entrants. We look forward to meeting all the necessary standards in 2026 and transitioning into commercial production. Initial smartphone-related revenue in 2026 is expected to support system integration and launch preparation, positioning us for larger-scale commercialization in late '26 or beginning in 2027. Now let's turn to smart eyewear. We view smart eyewear as an earlier commercialization pathway for AI-1 due to shorter qualification cycles and lower durability thresholds. We believe this market represents a compelling near-term expansion opportunity for the platform, where our high energy density architecture is well aligned with product requirements. Our engagement in this category began early, and we're working with partners we believe are well positioned to lead in this market as it scales. Compared to smartphones, where an incumbent is deeply entrenched, this creates a more direct path to initial adoption. Our focus now is execution as we prepare for initial volume shipments to lead smart eyewear platforms later this year. Today, the eyewear market is dominated by products without displays, largely focused on audio, connectivity, and basic AI assistance. However, over the balance of this decade, we expect more than 5x unit growth as display-enabled ecosystem emerges, which translates to even higher battery TAM expansion as ASPs increase over the same time frame. Display-enabled eyewear materially increases the power demand. Always-on AI processing, image capture, and augmented reality overlays create sustained energy draw in highly constrained form factors. That combination, compact design, and higher sustained power consumption is precisely where volumetric energy density matters most. Based on current engagement, which has accelerated rapidly, we expect smart eyewear to represent an earlier commercialization pathway for the AI-1 relative to smartphones. As this market matures, we estimate the smart eyewear battery TAM could exceed $400 million by 2030, and we believe AI-1 is well suited to participate meaningfully in this market. This slide illustrates how our platform aligns with smart eyewear cycle life requirements. Importantly, in this segment, customers typically require less than 1,000 cycles durability at 0.2C rates and do not have a pure 0.7C cycle test. Our energy density architecture is optimized for constrained space and sustained power draw. And because we architected AI-1 first for smartphones, the segment which has the highest technical qualification standards in consumer electronics, we believe extending the platform into smart eyewear is comparatively more straightforward from a performance standpoint. Once we designed for the most demanding use case, adjacent applications become natural extensions of the same core architecture. That allows us to prioritize energy density and power efficiency while comfortably meeting eyewear durability thresholds. In addition, we expect this market will have a mix of smaller customers who address a wide range of fashion preferences and use cases that are also enabled by the budding Android XR ecosystem. This means our future sales mix may include a meaningful percentage of off-the-shelf products in addition to customized products for the market leaders. We are seeing this dynamic play out already with multiple wins we announced at CES earlier this year. Let me now turn to defense. Defense continues to provide both revenue and operational validation of our technology and manufacturing capabilities. We operate 2 differentiated defense-focused platforms across our global footprint. In Malaysia, we're advancing our 100% silicon anode architecture, our largest format AI-1 variation optimized for high energy density applications. These batteries are well suited for next-generation soldier systems, including augmented reality headsets and wearable power systems. We have supported U.S. Army programs since 2021 and recently provided deliveries under the conformal wearable battery program. In Korea, we have a conventional architecture platform utilizing graphite and silicon anodes. This facility has an extensive operating history in Korean defense markets and supports a wide range of battery sizes and configurations optimized for high discharge rate applications, including drones, subsea systems, and munitions for several of Korea's large defense contractors. Naval munitions specifically were the largest growth driver in 2025, and our pipeline is increasingly focused on expanding our presence in the aerial drones market. In 2024, we kicked off a campaign to introduce our technology to U.S. and European military contractors who are attracted by our diverse supply chain and internal manufacturing capacity. Establishing initial programs and building a pipeline has required time, but it is starting to pay off. We enter 2026 with a global pipeline of approximately $100 million, including opportunities with multiple Tier 1 defense contractors. Recent design win traction in Q4 has strengthened our confidence in pipeline conversion. As programs progress, we expect to provide greater visibility into customer engagements as we convert pipeline to backlog. Aerial drones represent a compelling battery growth opportunity with an estimated $1.5 billion TAM this year. Next-generation drone platforms require higher energy density to extend flight time and strong discharge capability to support power-intensive missions. As autonomy and AI capabilities expand, power requirements will continue to increase. Our platform aligns well with these needs, enabling longer flight times, sustained high discharge performance, and diversified supply chains through our manufacturing in Korea and Malaysia. We are building on deployed defense cells and existing customer relationships to expand into next-generation silicon anode drone applications. This segment demonstrates how our architecture scales beyond smartphones and supports a diversified growth strategy. This slide highlights our energy density progress in drone applications. Today, we have deployed defense cells supporting high discharge drone programs. We are now advancing a higher energy drone cell in development with internal testing achieving approximately 342 watt hours per kilogram. Looking ahead, our next-generation silicon anode roadmap targets energy density above 400 watt hours per kilogram to support increasingly autonomous platforms. The roadmap shows clear progression, deployed cells today, higher-energy product launches next, and next-generation silicon anode performance that expands mission capability. Now I'll turn it over to Ryan to talk about our financials.

Thanks, Raj. First, a few highlights on the fourth quarter results. Fourth quarter revenue was $11.3 million, a record for Enovix, up 16% year-over-year and above the top end of our guidance range of $10.5 million. This performance was driven by continued strength in defense and industrial shipments out of Korea. Non-GAAP gross profit was $2.9 million for a non-GAAP gross margin of approximately 26%. While margins can fluctuate quarter-to-quarter based upon product mix, Q4 benefited from higher volumes and operational improvements in Korea. Non-GAAP operating expenses were consistent with our planned investment levels, reflecting continued investment in smartphone and smart eyewear qualification programs as well as Fab2 readiness. Non-GAAP loss from operations was $28.9 million, modestly better than the guidance range of $30 million to $33 million. Non-GAAP net loss per share attributable to Enovix was a loss of $0.14, also better than the guidance range of a loss of between $0.16 and $0.20. With respect to the balance sheet, we ended the year with approximately $621 million in cash, cash equivalents, and marketable securities, providing substantial liquidity to execute on our commercial plans as well as enabling us to evaluate strategic opportunities from a position of strength. Additionally, the Board authorized a share repurchase program, reflecting confidence in our long-term strategy and adding another tool to our capital allocation framework as we focus on long-term shareholder value. Turning to the full-year results. For the full year 2025, revenue totaled $31.8 million, a record for the company, representing 38% year-over-year growth. This growth reflects sustained execution in defense and industrial markets while new products in the smartphone and smart eyewear markets advance towards commercialization. Full year non-GAAP gross margin improved to 23%, benefiting from higher volumes and demonstrating substantial progress in manufacturing execution. Capital expenditures for the year were disciplined and aligned with our staged manufacturing expansion plans. Overall, we exited 2025 in a stronger financial and operational position than we entered it, with growing revenue, improving margins, and substantial liquidity to execute upon our roadmap. Now turning to Q1 2026 guidance. For Q1, we expect revenue in the range of $6.5 million to $7.5 million, reflecting normal seasonality and program timing of defense shipments. We expect non-GAAP loss from operations between $29 million and $32 million, reflecting continued investment in product qualification and manufacturing readiness. We expect capital expenditures between $9 million and $11 million, primarily related to Fab2 equipment. Actual cash payments in Q4 were lower than previously guided due to the timing of equipment and vendor payments. The majority of those payments are expected to occur in the first half of 2026. This is primarily timing, though we also made a couple of intentional near-term adjustments. Coincident with the operations leadership transition, we made 2 adjustments to our capital plan. First, we deferred initiation of the NPI line in Korea to allow KH time to fully evaluate priorities and sequencing. Second, given the high demand for products from our Korea factory, we are accelerating adding incremental capacity there. This is a relatively modest investment supported by high customer demand and opportunities. On the M&A front, to provide a little bit more color there, we continue to actively evaluate a range of opportunities, both smaller and larger, that could accelerate commercialization or strengthen our manufacturing and technology position. We will only deploy capital with a focused and disciplined approach, especially with respect to strategic fit and price. And with that, I think we're ready to take questions.

We're now entering the Q&A session, which is being recorded. Before taking live questions, we'll address the two most highly voted questions submitted by shareholders during the call registration. The first question is: how does your current strategy differentiate Enovix from competitors?

Thank you for that question. So Enovix, we use 100% active silicon anode. Most of our competitors use graphite for the anode. Silicon anodes can store much more lithium. So we are able to provide much higher energy density because of that. One of the problems with replacing graphite with silicon is that the silicon tends to swell when using a battery when doing a charge and discharge. We've got an architectural advantage where we figured out how to enable the silicon anode from not swelling while maintaining the energy density advantage. That is our main advantage, and that is how we differ from most of our competition because we provide much higher energy density due to using 100% active silicon anodes.

Thanks. The second question is, at our current burn rate, how long is our cash runway? And under what conditions will we need to raise additional capital?

I'll take that one. First, we ended the year with about $621 million in cash, cash equivalents, and marketable securities, which puts us in a strong position, in my view. Second, I would advise against thinking of our runway solely in terms of static burn rate, as our spending is linked to specific qualification and commercialization milestones. As those programs advance, our working capital and capital expense profiles will change as well. As mentioned in the prepared remarks, we believe we have substantial liquidity to carry out our commercialization strategy without needing to raise capital in the near term. However, as we've previously discussed, we will always assess capital allocation options, including strategic M&A, in an opportunistic yet methodical manner.

Our first question comes from Mark Shooter with William Blair.

Can you hear me?

Yes, go ahead.

Great. So I appreciate you getting into the details and geeking out with us a bit on the smartphone C-rates test requirements. The 0.7C rate life cycle test is definitely overkill for smartphones, but it's an incumbent standard, and they're notoriously sticky and difficult to change once established. So I'm wondering in your engagements with Honor, how receptive were they when you suggested the change? And given that cycle life and energy density are always paired to trade-offs, would Honor take a formulation that hits that 0.7 rate cycle life spec with a slightly lower energy density?

Thank you for the question. The main point I want to make is that the reason I shared some of the material in this presentation is to highlight that most smartphone use cases, as battery capacities increase, operate under a 0.2C discharge rate. This suggests that we now have a battery that can exceed 1,000 cycles at this rate. We believe our battery meets the smartphone market's requirements. However, testing the battery to confirm its performance under normal usage conditions can take at least a year because running tests at 0.2C is time-consuming. Customers often use a higher discharge rate, like 0.7C, to expedite testing. This approach is similar to traditional burn-in tests used for chips to uncover early failures. It's important to note that silicon anode batteries respond differently when discharged quickly, at 0.7C. Our discussions with Honor and other smartphone customers show that they understand this distinction. They recognize that the 0.7C test is a proxy and an accelerated test, not fully representative of real-world usage. We are exploring three paths forward. First, we aim to convince them that the true performance test is at 0.2C and seek a waiver for lower cycle life at 0.7C. This discussion is about cycle life testing, not energy density. Secondly, we want to collaborate with them to find another accelerated test that better represents silicon anodes. We have some potential ideas and are discussing those with them. The third option is to adjust our electrochemistry to meet the 0.7C test standard. We are actively working on all three approaches. There is considerable interest from our customers in our batteries due to the higher energy density we offer and the potential for even higher densities with a 100% silicon anode. Those conversations are progressing well, but we need to resolve the testing issue to ensure both we and our customers are confident that the batteries will perform effectively in real-life usage when they are integrated into smartphones.

I appreciate all the color there. If I can switch over to the opportunity in smart glasses. In the presentation, you gave a lot of information there on the TAM as well. The performance advantage with Enovix's cell and technology goes up, but the battery application requirements get easier. So I can see this as your faster commercialization path. But you did mention an initial production demand in your release statement. So I mean, should we think about that as a purchase order? Or is that a next step? And can you frame what the revenue opportunity might be for '26? Or is this a '27 story?

Yes, that's a great question. As you mentioned, when the battery size decreases while the energy requirements remain high, we have a significant advantage because a smaller battery allows for better efficiency compared to our competitors. The additional materials we use to prevent the cell from expanding do not impact our performance as much. This is why we are much more competitive in this space. Additionally, the cycle life requirements are lower since users tend to change their smart glasses more frequently than needing 1,000 cycles. The battery in smart glasses is currently a limiting factor. If you've tried smart glasses on the market today, you’ll notice that they typically do not last all day, unlike smartphones, which can. A better battery is crucial for enhancing the product's performance, which is why our customers are very interested in our offerings. There are numerous applications and product types we can explore, from sport and utility glasses to fashion glasses. With the upcoming Android XR ecosystem, we expect an increase in product variety, leading to a significantly larger market than we had anticipated a few years ago, which excites us about this opportunity. Regarding your question about the initial production demand, yes, you should consider that as a purchase order, and we are now manufacturing units for our lead customer. Our entire team is dedicated to executing this plan and producing these products. Initial volumes will be modest as we are just beginning, but we anticipate substantial growth in 2027 and 2028, making this a meaningful opportunity for us. We are looking forward to it.

Yes. If I can just jump in and chime in. Had an old boss, used to say, 'All dollars are not equal.' It's a very important order for us.

The next question comes from George Gianarikas with Canaccord Genuity.

Incredible level of detail in presentation. Appreciate it. So maybe first question, you pointed to sort of a little bit of an issue with the electrode dicing and the manufacturing process getting yields up there. How much have you been talking with your potential future customers around fixing that issue maybe together in anticipation of ramping production towards the end of this year?

Yes. Firstly, as I mentioned, the yields on nearly all steps are above 80%. On the dicing side, they are close to 80%, but not quite there in the fourth quarter. So far this quarter, we are at 80%. We feel confident that as we progress, things will improve. This is because we have just started producing two types of batteries: the smartphone battery and the smart eyewear battery. Last year, we sampled a variety of batteries, and now we're focusing on these two, one on the Agility Line and one on the high-volume line. We will continue to make improvements at each stage. Our customers have visited our factories and have seen our progress. We have successfully completed multiple customer audits and have sufficient supply to meet all requirements for 2026. We are also exploring different options to increase throughput and become more cost-effective than laser dicing methods to boost our volumes. We are putting a lot of focus on this and collaborating with our customers.

And maybe with regard to the drone opportunity, can you sort of talk about the different variations of chemistries that you have to work with them? I'm assuming these are silicon-doped cells, not 100% silicon that you're approaching the market with first. And so how many different chemistries do you need to approach that market? And do you need, like, any additional salespeople to sort of attack it?

Yes, great question. We haven't discussed this much in the past, but we have been producing high-performance cells with a high rate of discharge, particularly for the Korean military from our Nonsan facility. Some of the requests were for drone batteries, and we've started developing those. With the market expanding rapidly due to recent political situations, there are numerous drones being deployed for both commercial and military purposes. We've combined our expertise in utilizing 100% silicon anodes with our Nonsan team. We also incorporate silicon into the graphite in increasing amounts. As I mentioned earlier, increasing silicon content leads to battery swelling, a challenge that persists. However, since these batteries are used in drones, even a 10% to 15% swelling is manageable, as there is space within the drone to accommodate that. We've discovered we can produce high energy density batteries that do swell slightly but remain effective for this application. In contrast, swelling in smartphones is unacceptable due to limited space. Overall, this has been a positive development for us. We have a solid roadmap and will be sampling higher watt-hour per kilogram cells this year, with plans to continue improving this next year. We also have many customers assisting us in this effort.

Our next question comes from Colin Rusch with Oppenheimer.

Can you guys hear me okay?

Yes, sir.

Yes, Colin, go ahead.

So guys, exciting that you're moving into the drones. Can you talk a little bit about the form factors that you're working on there as well as the diversity of electrolyte and binder materials and binder processes that you feel comfortable talking about at this point? Just want to get a sense of the full ecosystem here and potential product diversification that you might see within that opportunity.

Yes, absolutely. As I mentioned, it's a large market, and there are various types of drones involved. We have subsea drones and aerial drones, including larger ones designed to carry significant payloads as well as smaller drones that may be used for single missions or limited times. Our approach includes different chemistries and electrolytes to cater to this market. In this area, we can prioritize energy density and weight over cycle life since charging them 1,000 times isn't necessary; 300 cycles are sufficient. This opens up many more possibilities for us regarding the electrochemistries we can apply. Our team in Korea has extensive experience in this field, and we're exploring various chemistries, including pure graphite and graphite mixed with silicon, along with different types of cathodes. We recognize this market well. Moreover, a significant advantage in this industry is owning our manufacturing facilities. Our customers have expressed that having our own factories in Korea or Malaysia is a considerable benefit compared to competitors who rely on contract manufacturing in China and elsewhere. This aspect of having in-house manufacturing is very beneficial for us.

And I'll add to it. I think I was going to say part of the question, I do expect that we'll add to the sales and business development organization to support that. So it's kind of the time to build that group out.

That's right, yes.

Great. And given what's going on in the U.S. in terms of trying to migrate manufacturing and secure supply chains back into the U.S. over the next few years, even from Korea, can you talk about some of your capital planning on a multiyear basis as you enter that market in terms of having to have some localized or regionalized supply in the Western Hemisphere to serve some of the military?

Yes, as Ryan mentioned, we were fortunate to acquire a facility in Korea last year from SolarEdge, which added 300,000 square feet of capacity to our existing factory there. We have a skilled team that has been building batteries for defense and industrial applications for about 20 years. We have a significant presence in Korea, and this year we plan to invest further to expand that capacity. So far, manufacturing in both Korea and Malaysia has been satisfactory. We are assessing the potential to bring some operations to the U.S., but our customers are currently satisfied with our two facilities.

The next question is from Jeff Osborne with TD Cowen.

I appreciate all the detail on the call so far. I wanted to know, Raj, regarding the last earnings call about three months ago, is the 0.7C metric you mentioned new? You referenced a four-month testing period, and I'm curious about when the parameters changed. Did that four-month timeline start three months ago, meaning you'll have insights next month, or did you receive that new assignment in the past few weeks?

No, that's always been a requirement. We believe we can meet that requirement. Currently, with 100% silicon anode batteries, we can meet the 0.2C requirement because we now have data demonstrating that. When a 100% silicon anode battery is discharged rapidly at 0.7C, which isn't a typical usage scenario as I mentioned, it behaves differently than graphite batteries. Therefore, the accelerated test needs some adjustments for the type of battery we are utilizing. We have presented this to our customers, and they understand the situation. We are currently discussing the best way to address this. It's not a new task; we have the results and have solved the 0.2C issue, which I think is significant concerning a battery's use in phones. Now we are focused on resolving the 0.7C accelerated test in a manner that is acceptable to both us and our customers.

And do you think that can still be done in a 4-month window that started at some point this quarter? I'm just trying to understand when do you expect, knowing what you know now, to pass the Honor test, so to speak?

Yes, as I mentioned, we see three potential pathways. First, we have results on the 0.7C testing that do not fully meet the desired cycle life. We are discussing with our partners the reliability of these results and whether we can obtain a waiver, provided that the 0.2C testing maintains 1,000 cycles. The second pathway might involve developing a different accelerator test that we believe better represents actual performance and assures our partners that silicon anodes will function as expected in real-world scenarios. We are currently exploring this alternative testing approach. The third pathway would require us to adapt our electrochemistry to meet their strict requirements if they insist on the current parameters, and we have some strategies in mind for this, albeit it may take longer. The timeline will depend on which pathway we can successfully pursue. We are optimistic that we will convince them of one of these options by the end of the year and achieve some volume.

Got it. And then maybe for Ryan, just given Raj's answer on the 3 different outcomes there, as it relates to sort of modeling the business over the next few quarters, I know you only give formal guidance 1 quarter out, but I assume we should think about eyewear as the main driver outside of the Routejade facility for the next 6 months or so? That is part A of the question. And part B, can you just remind us of what you expect seasonality to be for defense? You've got a pretty precipitous decline in Q1. How should we think about that rebounding in Q2 to through the rest of the year?

Yes. Thanks, Jeff. For the first part of your question, the answer is yes. Smart eyewear is the more immediate opportunity. Regarding the second part of your question about seasonality, you are correct. If you look at the revenue pattern from last year, Q1 tends to be slow due to the order pattern of long-term defense contracts, while the latter half of the year generally performs much better, as evidenced by our record quarterly revenue in Q4.

Got it. And then maybe last one quickly for you. Just CapEx for the year, should we think about $50-plus million? Or what's the expectation?

We don't provide guidance beyond the current quarter. We only provided guidance for Q1 and generally discussed Q1, mentioning the HVM-2 line. We've started placing some orders for long lead items, but we will reassess all our plans with KH, who is in his new role as Head of Operations and is great to collaborate with. We will be cautious and strategic about how we distribute those orders throughout the year.

The next question comes from Will Peterson with JPMorgan.

I wanted to revisit the question regarding your operations in Korea. Can you provide us with an overview of what the combined capacity of Routejade and the other operation can generate in terms of megawatt hours or revenue? I'm trying to understand the maximum run rate you could achieve. Additionally, how much more capacity do you intend to add, and what type of investment are you contemplating?

Do you want to take that or me?

Go ahead.

We haven't provided specific figures regarding megawatts, but we've publicly mentioned that this facility is expected to generate significantly higher revenue streams, potentially up to double. We are currently making decisions about capital deployment that will contribute to this. While I don't want to quote an exact figure, we are aware of the substantial opportunity available in the markets we've discussed, and we have a strong team in place to support these efforts. We are beginning to invest funds, though the amounts we have invested in Korea over the past few years compared to our investments in PEP-2 are relatively small; however, they are crucial in terms of the return on investment both financially and strategically.

Yes. I want to add that we now have a much larger facility. We acquired a sizable facility equipped with many machines. We will be adding capacity incrementally and in a scalable way. Some of the equipment we acquired is already usable. For instance, we got a large coater that does not require us to increase capacity, and it was quite costly. We plan to add more to the dicing and stacking processes in a scalable fashion, which means we don’t have to implement everything at once. The facility allows us to add resources prudently as demand increases and material qualifications are achieved. It has been very fortunate for us to have acquired this facility just as the demand is rising.

I appreciate that. And then coming to the key, I guess, your first smartphone customer, trying to get a sense for the key learnings from the chemistry reformulation process. And how many more, I guess, options do you have with this customer? And you gave, I guess, a pretty clear example of cycle life. I guess is there differences in requirements between the various customers? Anything you can kind of give us to better understand what opportunities you have ahead?

Yes, the key takeaway here is that we aimed to provide more insight during this call and in our report. What we've learned is that the smartphone market poses significant challenges for portable batteries due to its size and potential for high margins, which is driven by the clear value it offers. However, developing a battery to meet this market's demands is difficult. Transitioning from traditional graphite batteries to a 100% silicon anode battery involves not only meeting strict requirements but also collaborating with customers to adapt testing methods to fit this new technology. This scenario reminds me of when fingerprint sensors were first added to phones, which required a shift in testing and usage despite being part of the same biometric authentication family. Despite these challenges, customers are keen to adopt this technology because our batteries can provide a roadmap for energy density that graphite batteries cannot. As I previously mentioned, the demand for AI applications continues to rise, and the specs we aim for are getting more ambitious, with expectations of reaching 10,000 milliamp hours. However, phone sizes cannot increase indefinitely, which motivates customers to partner with us in bringing this technology to market. Changing from a graphite to a silicon anode requires thorough qualification, and we've made significant progress, successfully passing a majority of the specifications we've established. While we've achieved considerable milestones in the smartphone sector, other markets, such as eyewear and wearable cameras, present easier opportunities due to their different requirements. As we've advanced our technology in collaboration with smartphone clients, we anticipate great prospects in these other areas even as we continue to refine our smartphone battery solution.

Our next question comes from Derek Soderberg with Cantor Fitzgerald.

I was curious if switching out the dicing technology sort of resets any part of the battery qualification process. Obviously, your customers want to make sure you guys can scale and putting aside any of the cycle life testing, might the change to the dicing technology push back that qualification process at all?

Look, any time you have a customer qualify one particular product, if you change some steps within it, we will need to communicate what those steps are and what it changes, and we will need to run some form of qualification again. That's just the way it is. Even when you move from one fab to the other, you got to do that. But the way we would do it is, these are all by different zones. For example, dicing is Zone 0 and then Zone 1 and then stacking is Zone 2. So there's many ways in my experience, we've done this. We established equivalents. We show similar performance. We can do a subset of the qual. So there's many different ways to do it, but it's still a little bit early. Right now, we are doing laser dicing on all of them. When we do some other form of dicing, we'll work with the customers to gradually phase it in.

Got it. And then just a quick follow-up. Are there any remaining technical milestones to shipping commercial volumes in the back half of the year for the augmented reality market?

Any technical milestones was your question?

For smart eyewear.

Yes, we have now seen our customers' products featuring our battery, which is very exciting. We observed a few at CES and many more in private demonstrations. The performance has been outstanding, and they really appreciate what it can do, particularly in conjunction with AI capabilities. We aren't facing significant technical challenges, but since this is a new market and application, the uses are still developing. Customers are testing various applications, and we will determine how to adapt as they discover new needs. We recently learned something after our initial sampling regarding different rates and pulses, and we quickly made adjustments. As a result, we now have a new battery that fulfills those requirements. My team is well-equipped to respond swiftly to these changes. Currently, we believe our battery meets all the necessary requirements, which is why we received a production purchase order.

The next question is from Alek Valero with Loop Capital.

This is Alek on for Ananda. So my first question is, what is a good way to think about the cadence of testing and production over the next few years for smartphone, eyewear, PCs and drones? Additionally, what do the capacity needs look like over that time frame? I have a quick follow-up.

Cadence of testing, how do you mean by that? Maybe you can ask a little bit better. In terms of timing you mean, how long it takes or...

Yes. I guess what's the timing of the phases of the testing?

My experience over the last three years has shown that we typically provide customers with a standard size cell that we have on hand. They give us their requirements regarding cycle life, energy density, charge and discharge rates, swelling requirements, and so on. After conducting a bench level test, which takes a few months, if they are satisfied, they request that specific size for use in their product, followed by additional product-level testing that extends the timeframe. If they need a different size, it can take us several months to develop those dimensions, which could mean a delay of three to four months. Once integrated into their product, they conduct further testing. After passing all tests, they place a purchase order and proceed with system-level testing to ensure the product performs as expected before going into production. This entire process can take between one to one and a half years for a brand-new customer starting from scratch. However, if the requirements are less stringent and we have existing technology that already meets them, the timeframe can be significantly reduced since we don’t need to alter anodes, cathodes, or electrolytes. For instance, when we had a product that satisfied smartphone requirements, we quickly adapted it for the smart eyewear market, resulting in a shorter lead time. Testing durations can vary based on cycle life requirements; for instance, testing for a 1,000-cycle requirement takes about four months, while a 300-cycle requirement can be quicker. Ultimately, whether a customer needs a custom cell or can use standard technology influences the duration of the process.

I appreciate the detail. Super helpful. And actually, just a quick follow-up and on that same note. So you mentioned the drones, and I believe you said that's one of the products that could handle a little bit more swelling. Can you speak to other markets besides drones that are maybe similar like this where you could get a little bit more swelling? Is there any markets there that seem attractive that you may want to penetrate in the future?

Yes. I would say industrial markets that require larger spaces, such as forklifts, allow more room for battery placement. You can fit the batteries into a larger pack and design it to accommodate some internal space. These are the types of markets I am referring to. However, for smaller products like earphones, smart glasses, or cameras, the constraints are much tighter. I believe industrial and defense applications are somewhat more forgiving in this regard.

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. Thank you all for your attention today to listen to the call. I really appreciate all the support, and we look forward to talking to you guys next quarter. Thank you.