Ensurge Micropower ASA

OSE:ENSU

Earnings Call Transcript

[Kevin Barber, executive]

Welcome to Ensurge Micropower's Q1 2022 Preliminary Report. My name is Kevin Barber, I'm the CEO. Today, I'm going to go through the progress we've made in this last quarter as well as talk about the strategy we have on delivering the world's first milli-Amp-Hour class, solid-state, lithium microbattery.

A reminder that this is covered under our safe harbor statement.

And now our Q1 2022 overview. So we here at Ensurge Micropower are very focused on delivering differentiated solid-state lithium microbatteries into the existing billion-unit market. We're bringing a novel solid-state architecture. We have an existing proven roll-to-roll manufacturing facility. We have intellectual property across the architecture and the barriers and the materials and the packaging and our approach to delivering this innovative technology. And we've built a very specific great team of 40-plus employees coming from the semiconductor as well as the battery industries.

As you see in the middle, our San Jose facility is a significant one, 70,000 square feet with a 20,000 square foot clean room.

And on the right, we are focused on delivering higher energy densities with faster charging with form factor flexibility compared to alternative rechargeable battery technologies. We've signed 5 customer agreements, and we have additional agreements in the pipeline. And when this facility is completely full and ramping production, it has the potential of delivering USD 100 million in EBITDA annually. We are targeting our initial production at the end of this year based on active customer interest and our progress on the technology development.

And we've made a lot of progress this last quarter across multiple topics. First, on the technology, we've continued to improve our unit cell cycling performance, having achieved the highest cycling performance we've achieved to date. We've validated the materials that we're using in packaging and ensured that the packaging provides a hermetic seal. And we're now optimizing the fully packaged microbatteries that meet the capacity and cycling targets for our customer samples.

On the commercial side, our customers continue to validate that our strategy and our differentiated technology has value and focus for their products. Our existing customers remain actively engaged and are in the process of integrating our batteries into their products. In addition and in parallel, we have active inbound customers interested in our products because in many cases, their products cannot be realized fully without our unique technologies.

On the team side, we hired 4 key people this past quarter: 2 in the packaging technology space, who are helping us accelerate our packaging innovation; and 2 key equipment engineers focused on enabling how to handle our ultra-thin steel and prepare ourselves for a production ramp later in the year.

On an ongoing focus for the rest of 2022, we'll continue to focus on converting our customers, both current and new, into initial revenue in Q4, while continuing to broaden the pipeline that we've developed these past quarters. We'll engage with qualifying our technology with our customers and prepare our operational readiness for the production ramp.

Our Q1 financials started the quarter at USD 6.8 million. Our expenses and cash use was slightly down since Q4, just under USD 6 million during Q1. Having raised just under USD 10.8 million in proceeds during the quarter, our ending cash ended at USD 11.674 million.

A little bit more detail on the technology progress. When you look at the elements necessary to build an end product, we break it into 3 pieces. First, building unit cells, individual unit cells that operate with sufficient capacity and cycling targets for the end product. Second is our ability to package and stack the unit cells with an ambient-free packaging that provides good hermeticity and allows high-yielding stacking of these unit cells. And then finally, it's the ability to fully integrate all of that technology from the unit cells and the packaging that achieves the sample capacity and cycling performance that our customers are looking for.

All of this requires continuous cycles of learning. And what we have been able to do over these past months is accelerate our cycles of learning by a factor of 2, cutting our cycle time in half. And today, to build a unit cell, the front end of the process, we're now at about 9 days of cycle time. And to finish the second part of the process, the packaging, it's an additional 9 days. And then the testing, to demonstrate the performance and the cycling, takes up to typically 2 weeks of testing. And so all of this is part of our learning cycles where we continuously are running improvement processes for all of the elements of our technology.

For our unit cells, we have achieved the capacity and cycling targets we're targeting for. We've demonstrated superior performance. We've demonstrated charging that is 3x that of lithium-ion microbatteries and can achieve a 5C high-pulse discharge, which is very important for applications that include high-frequency communications. And all of this is using our ultra-thin 10-micron steel that allows us to deliver energy densities and form factor flexibilities that other solid-state microbattery companies cannot match.

On our packaging area, we have validated that our internal packaging materials do, in fact, remain neutral during battery operation as lithium is a very sensitive element that wants to bind itself to other materials. And so this is a very important step in our technology development. We have developed an innovative solution that prevents the ambient from penetrating that can degrade the cycle performance. And on that basis, we have announced this week that we have filed multiple patents based on our new architecture and our new packaging technology that's unique in how we can ensure high-energy density while very innovative packaging maintain sufficient hermeticity.

On the integration, we have achieved significant stacking and handling of this ultra-thin steel that is required going through all the many process steps to handle these rolls and these sheets of these 10-micron steel. We've integrated the battery with the unit cell processing and stacking and packaging to the microbatteries. And now what remains is our requirement to consistently meet the initial cycling performance.

We have a series of activities that make a solution that we've identified that understand where we're targeting the final improvement we need to make. And we do expect to be able to provide Ensurge microbattery samples to customers shortly.

We have a very full pipeline on the customer front. And we have the current 5 signed agreements across digital health, fitness wearables, hearing health applications and industrial IoT. But we want to show that we also have a dozen active engagements of many other applications, both in the wearables space and the things space, the IoT space, that have very interesting applications and meaningful business that we're in discussions with today. And we have identified, next in our pipeline, additional companies that will become our next targets. And over the course of these last months, we have a very broad pipeline of well over additional 50 customers.

So the process we're in now from samples to production is that we're actively engaged with our current customers to help them build the boards for Ensurge microbatteries to help them prepare their designs and their applications. We'll be providing them the initial samples to the signed customers first, and then we'll broaden our sample engagements to others over time, while we're supporting the design-in of our batteries and delivering product in time for each of their customer ramps.

We've talked about a lot of value propositions that our technology can deliver, both because of our innovations as well as the inherent benefits of solid-state chemistry. Whether that's cycle life or pulse charges, shelf life or safety, all of these factors are really interesting to many of our customers.

But what we've seen is there's 4 that really stand out: first is the core energy density of our batteries, half the size for the same capacity or twice the capacity for the same size; the fast charging, the ability to charge the battery 3x faster than lithium-ion, which is a huge product differentiator and end-user benefit; the flexibility of customizing a form factor that meets the customer's true OEM application allows the customers to really consider how to best implement their battery into their product; and then finally, because of our unique surface mount format, we can enable low-temp reflow applications to integrate our battery onto the printed circuit board and also implemented and molded applications that require high temperature where lithium ion just simply cannot do that.

As we engage the customers, this will be the general customer development process: they'll evaluate our battery; they'll take that learning and complete their product development with our battery; and as that design is then finished, begins to start production and order those productions and introduce that into the marketplace.

And what we're seeing is that we have 2 categories of customers, some that will be very quick and short to revenue, which has the strongest alignment to the Ensurge value propositions, and they really need our battery to fully enable the products they're designing. And they tend to be smaller and agile companies that have faster evaluation and development time, and we would see initial revenue being at the end of 2022 and into early 2023.

And then there will be customers that will take a longer time to revenue where they have strong alignment to our value propositions, but they'll tend to be the midsized to larger companies that have longer evaluation and development times. And we would see initial revenue in the second half of 2023 for those category of customers.

So that's our update, both technologically and customer and on the team and where we come to. And now how do we deliver our strategy? And what we're very focused on is being the first milli-Amp-Hour class, solid-state lithium microbattery. We bring the unique benefits of the higher energy density enabled by our stainless steel substrate as well as the customizable form factor. But then in addition, the core benefits of solid-state chemistry versus lithium ion additionally brings the fast charge rate, the high-pulse discharge as well as longer cycle lives.

And all of this is addressing a billion-unit market opportunity that exists today, both in the hearable markets; the wearable markets; digital health; for medical applications, which are growing rapidly; the sports and fitness wearables, looking for unique form factors to deliver wearable applications; and then finally, the IoT connected sensor space where there's as many applications around things that are looking for small batteries that enable unique applications.

We bring a novel architecture, and we bring our ultra-thin 10-micron steel substrate. We bring the established anode-less, solid-state chemistry developed in the 1990s and proven by many, many customers to be a reliable and predictable chemistry. It brings lower cost and longer life cycles and allows us to simplify the manufacturing of our batteries. We bring semiconductor class innovative cell stacking and packaging that allows us to continue to leverage the energy density of the steel, further maximizing its energy density, maintaining the flexibility of customization and then it allows contacts for direct printed circuit board connection. And finally, our existing roll-to-roll manufacturing provides real volume capacity to deliver initial volume and to bring a platform of scale and cost that customers require.

And all of that together brings higher performance and customizability at scale. Energy density is twice that of lithium ion, 2 to 3x the cycle life with lithium ion, 2x the charging speed and, actually, we've measured up to 3x the charging speed of lithium ion. It's a fundamentally safer chemistry than liquid electrolyte at lithium ion, and then form factors that allows us to enable unique end products. And the bottom, you can see we convert the roll of steel into stack batteries, and we can then deliver different form factors, shapes and dimensions on the right.

Our manufacturing flow is very straightforward. We start with a raw roll of ultra-thin stainless steel up to hundreds of meters long. We deposit the cathode, we deposit the solid electrolyte. We process it through all of those steps. We come to the end of the deposition phase, and we pattern that steel into the unit cells on the roll where we're able to customize both the length and the width of the individual cells.

Then we take those cells and we test them. And the ones that are good, we are able to stack multiple unit cells with the same size on top of each other to form the single microbattery. We then complete that with encapsulation and the connectors on both sides, and we have a completed microbattery that allows both low-temperature reflow and surface mount technology packaging.

So in summary, we're very focused on delivering the first milli-Amp-Hour, solid-state lithium microbattery with our novel architecture into a billion-unit, $10 billion addressable market that exists today across multiple applications in the hearables, the wearables and the sensor markets.

We have barriers to entry. We have extensive intellectual property, which we've added to this week with our announcement of new filings of battery-specific patents, as well as the years of experience that we have in manufacturing know-how on roll-based manufacturing. We have an existing production-grade factory of $40 million worth of equipment that enables us to get started on relevant production ramp. And when the facility is full of equipment and fully operational, the business can begin to deliver, with our existing facility, $100 million in annual EBITDA.

So that's the summary we have for this quarter, and I appreciate your attention to us. And I look forward to giving you updates on the next quarter.

But before I wrap up, I just want to also say that I'm excited with the Nomination Committee's proposal today -- tomorrow -- or today's AGM for 2 new Board members that brings very relevant battery experience to the Board. Ms. Victoire de Margerie and Mr. Mark Newman both come with unique experience that I look forward to working with and build a great company going forward.

So thank you, and have a great day.