Enovix (ENVX) - 2023 Q1 - Quarterly Report

Report Information Filing Details Enovix Corporation filed a Form 10-Q for the quarterly period ended April 3, 2022, classified as a non-accelerated filer and an emerging growth company, with 156,827,136 shares of common stock outstanding as of May 13, 2022 - Enovix Corporation filed a Form 10-Q for the quarterly period ended April 3, 2022[1][2] - Registrant status: Non-accelerated filer, Emerging growth company[3][4] - Common Stock Outstanding (May 13, 2022): 156,827,136 shares[4] Table of Contents This section presents the table of contents for the Form 10-Q, outlining the structured organization of the financial information and other disclosures, including financial statements, management's discussion and analysis, risk factors, and exhibits Forward-Looking Statements Forward-Looking Statements Overview This section highlights that the report contains forward-looking statements regarding Enovix's future expectations, hopes, beliefs, intentions, or strategies, particularly concerning its ability to scale battery production, meet customer expectations, achieve market acceptance, and manage its financial performance - Forward-looking statements cover ability to build and scale advanced silicon-anode lithium-ion battery, production and commercialization timeline, meeting milestones, business model success, market opportunity, customer base expansion, product market acceptance, service revenue projections, conversion of revenue funnel, equipment orders for next-generation manufacturing, attracting service providers, brand strength, production line build-out, manufacturing process optimization, future product development, and demand for lithium-ion battery solutions[8] - Forward-looking statements are based on current expectations and beliefs, but actual results may differ materially due to risks and uncertainties, including those described in Part II, Item 1A. 'Risk Factors'[9] PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) This section presents the unaudited condensed consolidated financial statements of Enovix Corporation for the periods ended April 3, 2022, and March 31, 2021, including balance sheets, statements of operations, changes in stockholders' equity, and cash flows, along with accompanying notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (in thousands) | Metric | April 3, 2022 (in thousands) | January 2, 2022 (in thousands) | Change (in thousands) | | :--------------------------- | :--------------------------- | :----------------------------- | :-------------------- | | Cash and cash equivalents | $408,178 | $385,293 | $22,885 | | Total current assets | $415,549 | $398,121 | $17,428 | | Total assets | $506,291 | $482,565 | $23,726 | | Total current liabilities | $17,455 | $20,636 | $(3,181) | | Warrant liability | $56,460 | $124,260 | $(67,800) | | Total liabilities | $85,237 | $156,448 | $(71,211) | | Total stockholders' equity | $421,054 | $326,117 | $94,937 | Condensed Consolidated Statements of Operations Condensed Consolidated Statements of Operations (in thousands) | Metric | For the Quarters Ended April 3, 2022 (in thousands) | For the Quarters Ended March 31, 2021 (in thousands) | Change (in thousands) | % Change | | :------------------------------------------------------------------ | :-------------------------------------------------- | :--------------------------------------------------- | :-------------------- | :------- | | Cost of revenue | $515 | $1,631 | $(1,116) | (68%) | | Research and development | $12,731 | $5,589 | $7,142 | 128% | | Selling, general and administrative | $11,869 | $4,161 | $7,708 | 185% | | Total operating expenses | $25,115 | $11,381 | $13,734 | 121% | | Loss from operations | $(25,115) | $(11,381) | $(13,734) | 121% | | Change in fair value of convertible preferred stock warrants and common stock warrants | $67,800 | $(4,781) | $72,581 | N/M | | Net income (loss) | $42,707 | $(16,165) | $58,872 | (364%) | | Net income (loss) per share, basic | $0.28 | $(0.17) | $0.45 | N/M | | Weighted average number of common shares outstanding, basic | 151,648,439 | 95,816,889 | 55,831,550 | 58% | Condensed Consolidated Statements of Changes in Stockholders' Equity Condensed Consolidated Statements of Changes in Stockholders' Equity (in thousands) | Metric | January 2, 2022 (in thousands) | April 3, 2022 (in thousands) | Change (in thousands) | | :------------------------------------------------------------------ | :----------------------------- | :--------------------------- | :-------------------- | | Total Stockholders' Equity | $326,117 | $421,054 | $94,937 | | Issuance of common stock upon exercise of common stock warrants | — | $47,452 | $47,452 | | Stock-based compensation | — | $4,536 | $4,536 | | Net income | — | $42,707 | $42,707 | Condensed Consolidated Statements of Cash Flows Condensed Consolidated Statements of Cash Flows (in thousands) | Metric | For the Quarters Ended April 3, 2022 (in thousands) | For the Quarters Ended March 31, 2021 (in thousands) | Change (in thousands) | | :---------------------------------------------- | :-------------------------------------------------- | :--------------------------------------------------- | :-------------------- | | Net cash used in operating activities | $(19,689) | $(8,610) | $(11,079) | | Net cash used in investing activities | $(10,451) | $(7,141) | $(3,310) | | Net cash provided by (used in) financing activities | $53,025 | $(76) | $53,101 | | Change in cash, cash equivalents, and restricted cash | $22,885 | $(15,827) | $38,712 | | Cash and cash equivalents and restricted cash, end of period | $408,303 | $13,391 | $394,912 | Notes to Condensed Consolidated Financial Statements Note 1. Organization and Basis of Presentation - Enovix Corporation designs, develops, and manufactures an advanced silicon-anode lithium-ion battery using proprietary 3D cell architecture[18] - As of April 3, 2022, the Company has not generated product revenue from its planned principal business activities[19] - Business Combination on July 14, 2021, accounted for as a reverse recapitalization, with Legacy Enovix treated as the acquirer for financial reporting purposes[20][22] Note 2. Summary of Significant Accounting Policies - Financial statements are presented in accordance with GAAP and include accounts of the Company and its wholly-owned subsidiaries[21] - The Company has incurred recurring operating losses and negative cash flows since inception and expects this to continue[24] - Raised approximately $373.7 million net proceeds from Business Combination in July 2021 and $52.8 million net proceeds from Public Warrants exercise in January 2022[25] - Company expects cash to be sufficient for funding requirements over the next twelve months[26] - Adopted ASU No. 2016-13 on January 3, 2022, regarding credit losses, with no material impact on financial statements[33] Note 3. Fair Value Measurement Fair Value Measurement (in thousands) | Metric | April 3, 2022 (in thousands) | January 2, 2022 (in thousands) | Change (in thousands) | | :----------------------------------- | :--------------------------- | :----------------------------- | :-------------------- | | Private Placement Warrants (Level 3) | $56,460 | $124,260 | $(67,800) | - Fair value of Private Placement Warrants is determined using the Black-Scholes valuation model[38] - Key assumptions for Private Placement Warrants (April 3, 2022): Expected term 4.3 years, Expected volatility 75.0%, Risk-free interest rate 2.8%, Expected dividend rate 0.0%[40] Note 4. Property and Equipment Property and Equipment (in thousands) | Metric | April 3, 2022 (in thousands) | January 2, 2022 (in thousands) | Change (in thousands) | | :----------------------------------- | :--------------------------- | :----------------------------- | :-------------------- | | Construction in progress | $77,899 | $71,133 | $6,766 | | Total property and equipment, net | $83,102 | $76,613 | $6,489 | - Depreciation and amortization expenses related to property and equipment for the quarter ended April 3, 2022, were $0.3 million[41] Note 5. Leases Lease Costs and Cash Flows (in thousands) | Metric | For the Quarters Ended April 3, 2022 (in thousands) | For the Quarters Ended March 31, 2021 (in thousands) | | :------------------------------------ | :-------------------------------------------------- | :--------------------------------------------------- | | Operating lease cost | $420 | $292 | | Operating cash flows from operating leases | $336 | $312 | - Weighted-average remaining lease term as of April 3, 2022: 8.4 years[43] - Total lease liabilities maturities as of April 3, 2022: $12.641 million (present value $9.421 million)[46] Note 6. Commitments and Contingencies - Commitments as of April 3, 2022, included approximately $11.5 million for open purchase orders and contractual obligations[47] - Two lawsuits related to the Business Combination (Michael Costello v. RSVAC, Derek Boxhorn v. RSVAC) were voluntarily dismissed[48][49] - A putative wage and hour class action lawsuit (Sopheap Prak et al. v. Enovix Corporation et al.) was filed on January 21, 2022, alleging overtime, meal/rest period, and wage statement violations[50][52] Note 7. Warrants - Legacy Enovix Series D convertible preferred stock warrants were fully exercised by February 22, 2021[56] - Assumed 17.5 million Common Stock Warrants in July 2021 Business Combination (11.5 million Public Warrants, 6 million Private Placement Warrants)[57] - Public Warrants were redeemed by January 7, 2022; 4,126,466 shares exercised for $47.5 million gross proceeds[58][59] - As of April 3, 2022, 6,000,000 Private Placement Warrants remain outstanding, exercisable at $11.50 per share[62] Note 8. Net Earnings (Loss) per Share Net Earnings (Loss) per Share (in thousands, except per share amounts) | Metric | For the Quarters Ended April 3, 2022 | For the Quarters Ended March 31, 2021 | | :---------------------------------------------- | :----------------------------------- | :------------------------------------ | | Net income (loss) attributable to common stockholders - basic | $42,707 | $(16,165) | | Net income (loss) per share, basic | $0.28 | $(0.17) | | Net income (loss) attributable to common stockholders - diluted | $(25,093) | $(16,165) | | Net loss per share, diluted | $(0.16) | $(0.17) | | Weighted-average common shares outstanding, basic | 151,648,439 | 95,816,889 | | Weighted-average common shares outstanding, diluted | 153,338,462 | 95,816,889 | - Securities not included in diluted EPS calculation due to anti-dilutive nature for Q1 2022: Stock options (5,536,905), Restricted stock units (917,079), Employee stock purchase plan estimated shares (78,198)[66] Note 9. Stock-based Compensation Stock-based Compensation Expense (in thousands) | Operating Expense Category | For the Quarters Ended April 3, 2022 (in thousands) | For the Quarters Ended March 31, 2021 (in thousands) | Change (in thousands) | | :---------------------------------- | :-------------------------------------------------- | :--------------------------------------------------- | :-------------------- | | Cost of revenue | $0 | $274 | $(274) | | Research and development | $2,512 | $959 | $1,553 | | Selling, general and administrative | $2,726 | $185 | $2,541 | | Total stock-based compensation expense | $5,238 | $1,418 | $3,820 | - As of April 3, 2022, $50.6 million of total unrecognized stock-based compensation expense is expected to be recognized over a weighted-average period of 3.6 years[71] - Stock options outstanding as of April 3, 2022: 5,536,905 with a weighted average exercise price of $9.05[73] - Non-vested RSUs outstanding as of April 3, 2022: 917,079 with a weighted average grant date fair value of $20.54[77] Note 10. Related Party - RSVAC issued 5,750,000 Founder Shares to Rodgers Capital LLC (the Sponsor) on September 24, 2020[78] - A $15.0 million secured promissory note issued to a board member was fully repaid on July 14, 2021, including $0.1 million loss on early debt extinguishment[79] - The Company employs a family member of the CEO as an equipment engineer[80] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on Enovix's financial condition and results of operations for the quarter ended April 3, 2022, focusing on battery development, Fab-1 operations, BrakeFlow™ safety technology, and a $1.5 billion revenue funnel - Enovix designs, develops, and plans to commercially manufacture an advanced silicon-anode lithium-ion battery using proprietary 3D cell architecture[83] - Fab-1 is operational, with first production revenue forecasted in the second quarter of 2022; Gen2 production line equipment ordering began in May 2022 for installation in Fab-2 in H1 2023[85][95] - Q1 2022 highlights include producing advanced 3D Silicon™ lithium-ion batteries for customer qualification and announcing BrakeFlow™, a breakthrough in battery safety[92] - Revenue funnel at end of Q1 2022 was $1.5 billion, comprising $1.11 billion in Engaged Opportunities and $371.0 million in Active Designs and Design Wins[93] - Near-term market focus: wearables, computing, and mobile communications, with plans to seed entry into the EV battery market through partnerships[99][100] - Net income of $42.7 million for Q1 2022, compared to a net loss of $(16.2) million for Q1 2021, primarily due to a $67.8 million positive change in fair value of common stock warrants[113][120] - Research and development expenses increased by 128% to $12.7 million, and selling, general and administrative expenses increased by 185% to $11.9 million, driven by increased headcount and professional fees[118][119] - Net cash used in operating activities was $19.7 million for Q1 2022, and net cash used in investing activities (primarily property and equipment purchases) was $10.5 million[137][139] - Net cash provided by financing activities was $53.0 million for Q1 2022, mainly from common stock warrant exercises[140] - Adjusted EBITDA for Q1 2022 was $(19.4) million, compared to $(9.8) million for Q1 2021[128] - Free Cash Flow for Q1 2022 was $(30.1) million, compared to $(15.8) million for Q1 2021[129] Item 3. Quantitative and Qualitative Disclosure about Market Risks Enovix is exposed to market risks including interest rate fluctuations, inflation, and foreign currency risks, with $408.2 million in cash and cash equivalents and no outstanding interest-bearing debt as of April 3, 2022 - Primary market risk exposure is interest rate sensitivity; an immediate 100 basis point change in interest rates would not materially affect cash equivalents[154] - As of April 3, 2022, the Company had $408.2 million in cash and cash equivalents and no outstanding interest-bearing debt[154] - No material foreign currency risk or inflation risk for the quarters ended April 3, 2022, and March 31, 2021, due to limited U.S.-centric activities[156][158] Item 4. Controls and Procedures Management concluded that Enovix's disclosure controls and procedures were effective at a reasonable assurance level as of April 3, 2022, with no material changes in internal control over financial reporting during the quarter - Disclosure controls and procedures were effective at a reasonable assurance level as of April 3, 2022[160] - No material changes in internal control over financial reporting occurred during the quarter ended April 3, 2022[161] - Control systems provide only reasonable, not absolute, assurance due to inherent limitations and resource constraints[163] PART II. OTHER INFORMATION Item 1. Legal Proceedings This section incorporates by reference the legal proceedings information from Note 6 'Commitments and Contingencies' in Part I, Item 1, detailing past lawsuits related to the Business Combination and a pending wage and hour class action lawsuit - Legal proceedings information is incorporated by reference from Note 6 'Commitments and Contingencies'[164] Item 1A. Risk Factors Investing in Enovix securities involves a high degree of risk, including challenges in improving energy density, reliance on a new and complex manufacturing process, inability to meet demand, supply chain disruptions, cost control issues, product performance failures, intense competition, and the need for additional capital - Key risks include the need to improve energy density, reliance on a new and complex manufacturing process, insufficient manufacturing facilities to meet demand, and potential inability to source necessary components or control costs[167][170][172][177][180][186] - Risks related to product performance include potential defects, unexpected failures, and safety events, which could lead to recalls, warranty costs, and brand damage[192][193] - The company is an early-stage company with a history of financial losses and expects significant expenses and continuing losses for the foreseeable future[168][205][206] - The battery market is highly competitive and evolving, with risks from competing technologies, faster industry improvements in energy density, and potential state-sponsored competition from overseas[212][213][214][216][218] - Significant capital is required for business development and growth, with potential need for additional funding that may not be available on acceptable terms, leading to dilution or operational restrictions[242][244][245][248] - Intellectual property protection is crucial; inability to prevent unauthorized use or defend against infringement claims could harm business and competitive position[249][250][252] - Regulatory risks include potential delays in product launch due to approval difficulties, compliance costs with evolving environmental and safety regulations, and challenges with foreign trade zone compliance[260][261][262][269][273] - Risks related to ownership of securities include stock price volatility, potential adverse effects from future sales by existing stockholders, and challenges in complying with Nasdaq listing standards[275][281][284][288][289] - The company's status as an 'emerging growth company' allows for exemptions from certain disclosure requirements, which could make its securities less attractive to investors[293][295][296] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities This section states that there were no unregistered sales of equity securities or use of proceeds from registered securities to report for the period - No unregistered sales of equity securities or use of proceeds from registered securities to report[327] Item 3. Defaults Upon Senior Securities This section states that there were no defaults upon senior securities to report for the period - No defaults upon senior securities to report[328] Item 4. Mine Safety Disclosures This section states that there were no mine safety disclosures to report for the period - No mine safety disclosures to report[329] Item 5. Other Information This section states that there was no other information to report for the period - No other information to report[329] Item 6. Exhibits This section lists the exhibits filed with the Quarterly Report on Form 10-Q, including amended certificates of incorporation and bylaws, certifications of the CEO and CFO, and Inline XBRL documents - Exhibits include Amended and Restated Certificate of Incorporation, Amended and Restated Bylaws, Certifications of CEO and CFO, and Inline XBRL documents[331] Signatures Signatures Overview The report is signed by Harrold Rust, President and Chief Executive Officer, and Steffen Pietzke, Chief Financial Officer, on May 18, 2022, certifying its submission to the Securities Exchange Act of 1934 requirements - Report signed by Harrold Rust (President and CEO) and Steffen Pietzke (CFO) on May 18, 2022[337]