Enovix (US:ENVX)2023-11-08 16:00PART I. FINANCIAL INFORMATION Item 1. Financial Statements This section presents Enovix Corporation's unaudited condensed consolidated financial statements, including balance sheets, statements of operations, and cash flows, for the quarter and nine months ended October 1, 2023 Condensed Consolidated Balance Sheets Total assets increased to $519.9 million, driven by property and equipment and new short-term investments, while total liabilities rose to $267.5 million due to new long-term debt Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Oct 1, 2023 | Jan 1, 2023 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $270,817 | $322,851 | | Short-term investments | $100,522 | $0 | | Property and equipment, net | $136,713 | $103,868 | | Total Assets | $519,942 | $440,586 | | Liabilities & Equity | | | | Total current liabilities | $44,126 | $23,029 | | Long-term debt, net | $167,080 | $0 | | Total liabilities | $267,467 | $84,159 | | Accumulated deficit | ($538,868) | ($384,774) | | Total stockholders' equity | $252,475 | $356,427 | Condensed Consolidated Statements of Operations For Q3 2023, revenue was $0.2 million with a net loss of $16.2 million, significantly improved from prior year due to warrant fair value changes, while YTD net loss widened to $154.1 million Quarterly Statement of Operations Highlights (in thousands) | Account | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Revenue | $200 | $8 | | Cost of revenue | $16,809 | $6,629 | | Gross margin | ($16,609) | ($6,621) | | Total operating expenses | $33,774 | $27,058 | | Loss from operations | ($50,383) | ($33,679) | | Change in fair value of common stock warrants | $31,320 | ($50,160) | | Net loss | ($16,185) | ($82,013) | | Net loss per share, basic | ($0.10) | ($0.53) | Year-to-Date Statement of Operations Highlights (in thousands) | Account | YTD 2023 | YTD 2022 | | :--- | :--- | :--- | | Revenue | $263 | $5,109 | | Cost of revenue | $43,292 | $12,883 | | Gross margin | ($43,029) | ($7,774) | | Total operating expenses | $122,449 | $79,051 | | Loss from operations | ($165,478) | ($86,825) | | Net loss | ($154,094) | ($40,441) | | Net loss per share, basic | ($0.98) | ($0.27) | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities was $77.4 million, investing activities used $132.0 million, and financing activities provided $157.4 million, resulting in a $52.0 million decrease in cash Year-to-Date Cash Flow Summary (in thousands) | Category | YTD Ended Oct 1, 2023 | YTD Ended Oct 2, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($77,408) | ($60,903) | | Net cash used in investing activities | ($132,015) | ($31,366) | | Net cash provided by financing activities | $157,389 | $55,983 | | Change in cash, cash equivalents, and restricted cash | ($52,034) | ($36,286) | Notes to Condensed Consolidated Financial Statements Key disclosures include the issuance of $172.5 million Convertible Senior Notes, the pending acquisition of Routejade, the creation of a VIE for Malaysia operations, and the Fab1 restructuring plan - In April 2023, the company issued $172.5 million in 3.0% Convertible Senior Notes due 2028, raising net proceeds of approximately $166.6 million to fund the Fab2 build-out in Malaysia and for general corporate purposes377779 - On September 18, 2023, the company entered into an agreement to acquire Routejade, Inc. for approximately $15.8 million in cash and 5.9 million shares of common stock, with the transaction closing on October 31, 2023132133 - The company initiated a strategic realignment of its Fab1 facility on October 3, 2023, recording $3.0 million in restructuring costs for Q3 2023 and expecting to recognize an additional $36 million in accelerated depreciation for Gen1 equipment135136137 - The company entered into a manufacturing agreement with YBS International Berhad in Malaysia and determined that YBS's subsidiary, OSSB, is a Variable Interest Entity (VIE) for which Enovix is the primary beneficiary, requiring consolidation126131 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2023 strategic shifts, including Fab1 realignment, Gen2 equipment progress, and the Routejade acquisition, detailing increased operating losses and sufficient liquidity for the next 12 months Q3 2023 Highlights Q3 2023 highlights include commencing Gen2 equipment FAT, agreeing to acquire Routejade for vertical integration, and realigning Fab1 to an innovation center, reducing cash burn by $22 million annually - Initiated a strategic realignment of the Fab1 production line to a 'Center for Innovation,' reducing annualized cash burn by approximately $22 million and incurring $3.0 million in restructuring costs143 - Entered into a stock purchase agreement to acquire Routejade, which closed on October 31, 2023, expected to reduce costs, enhance manufacturability, and add $3 to $4 million in revenue for Q4 2023143 - Commenced and recently completed Factory Acceptance Testing (FAT) for one of the four zones of the second-generation (Gen2) manufacturing equipment production line143 Results of Operations Q3 2023 revenue was $0.2 million, with operating loss increasing to $50.4 million due to higher cost of revenue and restructuring, while YTD operating loss grew to $165.5 million from increased production costs Comparison of Quarterly Results (in thousands) | Account | Q3 2023 | Q3 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $200 | $8 | $192 | N/M | | Cost of revenue | $16,809 | $6,629 | $10,180 | 154% | | Loss from operations | ($50,383) | ($33,679) | ($16,704) | 50% | | Net loss | ($16,185) | ($82,013) | $65,828 | N/M | Comparison of Year-to-Date Results (in thousands) | Account | YTD 2023 | YTD 2022 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Revenue | $263 | $5,109 | ($4,846) | N/M | | Cost of revenue | $43,292 | $12,883 | $30,409 | 236% | | Loss from operations | ($165,478) | ($86,825) | ($78,653) | 91% | | Net loss | ($154,094) | ($40,441) | ($113,653) | N/M | Liquidity and Capital Resources As of October 1, 2023, the company held $371.5 million in cash and investments, bolstered by $166.6 million net proceeds from Convertible Senior Notes, deemed sufficient for the next twelve months - As of October 1, 2023, the company had cash, cash equivalents, restricted cash, and short-term investments totaling $371.5 million and working capital of $331.6 million208 - In April 2023, the company raised approximately $166.6 million in net proceeds from the issuance of Convertible Senior Notes, which will be used to build out the Fab2 facility in Malaysia and for general corporate purposes212 Year-to-Date Cash Flow Summary (in thousands) | Category | YTD Ended Oct 1, 2023 | YTD Ended Oct 2, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | ($77,408) | ($60,903) | | Net cash used in investing activities | ($132,015) | ($31,366) | | Net cash provided by financing activities | $157,389 | $55,983 | Item 3. Quantitative and Qualitative Disclosure about Market Risks The company faces market risks from interest rates, foreign currency, and inflation, with interest rate risk being minimal, foreign currency risk growing with international operations, and inflation risk not yet material - Interest rate risk is not considered material due to the short-term nature of the company's $371.5 million in cash and investments and the fixed 3.0% annual interest rate on its $172.5 million of Convertible Senior Notes238239 - Foreign currency risk was immaterial for the quarter as operations were primarily in the U.S., but this risk may become more significant as international operations in Malaysia and Korea grow240241 - Inflation risk has not been material to date but is a concern, as significant inflationary pressures on equipment or material costs may not be fully offset by increased revenue242 Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of October 1, 2023, with no material changes to internal control over financial reporting during the quarter - Based on an evaluation as of October 1, 2023, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective244 - No changes to the company's internal control over financial reporting occurred during the quarter ended October 1, 2023, that have materially affected, or are reasonably likely to materially affect, internal controls245 PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is involved in a securities class action and two wage and hour class action lawsuits, against which it intends to vigorously defend - The company is defending against a securities class action complaint filed on January 6, 2023, alleging material misstatements regarding manufacturing scale-ups and equipment testing, with a motion to dismiss filed on September 15, 202398327 - Two separate putative wage and hour class action lawsuits have been filed by former employees alleging violations of the California Labor Code, for which the company is seeking resolution9697 Item 1A. Risk Factors Significant risks include challenges in scaling complex manufacturing, reliance on third-party manufacturers, controlling operational costs, and intense competition, alongside product performance, capital needs, and litigation - The company relies on a new, complex manufacturing process and faces significant risks in achieving volume production, yield, and cost targets, particularly with the build-out of its Fab2 facility in Malaysia251254 - There is a significant reliance on a third-party contract manufacturer, YBS, in Malaysia, which introduces risks related to manufacturing control, quality, financing, and geopolitical factors263267 - The company may be unable to adequately control operational costs, and its forecasted cost advantages depend on achieving throughput and yield goals that have not yet been met251280 - Servicing the company's debt, including the Convertible Senior Notes, requires significant cash, and future business performance may not generate sufficient cash flow to meet these obligations252334 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities This section discloses the unregistered issuance of $172.5 million in Convertible Senior Notes in April 2023 and 5.9 million common shares for the Routejade acquisition in October 2023 - On April 20, 2023, the company issued $172.5 million aggregate principal amount of 3.0% Convertible Senior Notes due 2028 in a private placement exempt from registration under Section 4(a)(2) of the Securities Act420 - On October 31, 2023, the company issued 5,923,521 shares of common stock to Rene Limited as partial consideration for the acquisition of Routejade, exempt from registration under Section 4(a)(2) of the Securities Act421 Item 5. Other Information Director Betsy Atkins adopted a Rule 10b5-1 trading plan on August 29, 2023, for the potential sale of 35,506 shares of common stock, expiring December 26, 2024 - Director Betsy Atkins adopted a Rule 10b5-1 trading plan on August 29, 2023, covering the sale of 35,506 shares of common stock427 Item 6. Exhibits This section lists exhibits filed with the Form 10-Q, including CEO/CFO certifications and new agreements like the Cash Deposit Agreement and the Routejade Stock Purchase Agreement