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envx-20231001

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended October 1, 2023

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from__________to __________

Enovix Corporation

(Exact Name of Registrant as Specified in Charter)

(Successor to RODGERS SILICON VALLEY ACQUISITION CORP.)

Delaware

001-39753

85-3174357

(State or Other Jurisdiction
of Incorporation)

(Commission
File Number)

(IRS Employer
Identification No.)

3501 W Warren Avenue

Fremont, California 94538

(Address of Principal Executive Offices) (Zip Code)

(510) 695-2350

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading
Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.0001 per share

ENVX

The Nasdaq Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.


Large accelerated filer	x	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	o
Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

As of November 6, 2023, 167,774,133 shares of common stock, par value $0.0001 per share, were issued and outstanding.

Table of Contents


		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited)	1
	Condensed Consolidated Balance Sheets as of October 1, 2023 and January 1, 2023	1
	Condensed Consolidated Statements of Operations for the quarters and fiscal years-to-date ended October 1, 2023 and October 2, 2022	2
	Condensed Consolidated Statements of Comprehensive Income for the quarters and fiscal years-to-date ended October 1, 2023 and October 2, 2022	3
	Condensed Consolidated Statements of Changes in Stockholders’ Equity for the quarters and fiscal years-to-date ended October 1, 2023 and October 2, 2022	4
	Condensed Consolidated Statements of Cash Flows for the fiscal years-to-date ended October 1, 2023 and October 2, 2022	7
	Notes to Condensed Consolidated Financial Statements	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 3.	Quantitative and Qualitative Disclosure about Market Risks	38
Item 4.	Controls and Procedures	38
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	39
Item 1A.	Risk Factors	39
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities	67
Item 3	Defaults Upon Senior Securities	68
Item 4	Mine Safety Disclosures	68
Item 5	Other Information	68
Item 6.	Exhibits	69
	Signatures	71

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FORWARD LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The statements contained in this Quarterly Report on Form 10-Q that are not purely historical are forward-looking statements. Our forward-looking statements include, but are not limited to, statements regarding our or our management’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. Forward-looking statements in this Quarterly Report on Form 10-Q may include, for example, statements about our:

•ability to build and scale our advanced silicon-anode lithium-ion battery, our production and commercialization timeline;

•ability to meet milestones and deliver on our objectives and expectations, the implementation and success of our products, technologies, business model and growth strategy, various addressable markets, market opportunity and the expansion of our customer base;

•ability to meet the expectations of new and current customers, our ability to achieve market acceptance for our products;

•financial performance, including revenue, expenses and projections thereof;

•placement of equipment orders for our next-generation manufacturing lines, the speed of and space requirements for our next-generation manufacturing lines;

•factory sites and related considerations, including site selection, location and timing of build-out, and benefits thereof;

•ability to attract and hire additional service providers, the strength of our brand, the build-out of additional production lines, our ability to optimize our manufacturing process, our future product development and roadmap and the future demand for our lithium-ion battery solutions;

•ability to timely and successfully complete the strategic realignment of the Company’s first production line in Fremont and the corresponding restructuring;

•ability to deposit sufficient collateral for the foreign currency term loan from OCBC Bank (Malaysia) Berhad; and

•challenges that we may face as we integrate the business and operations of Routejade, a lithium-ion battery company that we acquired on October 31, 2023.

The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those described in Part II, Item 1A. “Risk Factors” of this Quarterly Report on Form 10-Q. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements

ENOVIX CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except share and par value amounts)

(Unaudited)


	October 1, 2023		January 1, 2023
Assets
Current assets:
Cash and cash equivalents	$	270,817	$	322,851
Short-term investments	100,522		—
Accounts receivable, net	1		170
Inventory	215		634
Deferred contract costs	—		800
Prepaid expenses and other current assets	4,182		5,193
Total current assets	375,737		329,648
Property and equipment, net	136,713		103,868
Operating lease, right-of-use assets	5,912		6,133
Deferred contract costs, non-current	800		—
Other assets, non-current	780		937
Total assets	$	519,942	$	440,586
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable	$	18,272	$	7,077
Accrued expenses	15,784		7,089
Accrued compensation	9,126		8,097
Deferred revenue	—		50
Other liabilities	944		716

Total current liabilities	44,126		23,029
Long-term debt, net	167,080		—
Warrant liability	44,940		49,080
Operating lease liabilities, non-current	7,538		8,234
Deferred revenue, non-current	3,774		3,724
Other liabilities, non-current	9		92
Total liabilities	267,467		84,159
Commitments and Contingencies (Note 8)
Stockholders’ equity:
Common stock, $0.0001 par value; authorized shares of 1,000,000,000; issued and outstanding shares of 161,665,677 and 157,461,802 as of October 1, 2023 and January 1, 2023, respectively	16		15
Preferred stock, $0.0001 par value; authorized shares of 10,000,000; no shares issued or outstanding as of October 1, 2023 and January 1, 2023, respectively	—		—
Additional paid-in-capital	791,340		741,186
Accumulated other comprehensive loss	(13)		—
Accumulated deficit	(538,868)		(384,774)
Total stockholders’ equity	252,475		356,427
Total liabilities and stockholders’ equity	$	519,942	$	440,586

See accompanying notes to these condensed consolidated financial statements.

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ENOVIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(In thousands, except share and per share amounts)

(Unaudited)


	Quarters Ended				Fiscal Years-to-Date Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022



Revenue	$	200	$	8	$	263	$	5,109



Cost of revenue	16,809		6,629		43,292		12,883
Gross margin	(16,609)		(6,621)		(43,029)		(7,774)
Operating expenses:
Research and development	13,508		13,948		53,810		42,506
Selling, general and administrative	17,245		13,110		61,207		36,545
Impairment of equipment	—		—		4,411		—
Restructuring cost	3,021		—		3,021		—
Total operating expenses	33,774		27,058		122,449		79,051
Loss from operations	(50,383)		(33,679)		(165,478)		(86,825)
Other income (expense):
Change in fair value of common stock warrants	31,320		(50,160)		4,140		44,040


Interest income	4,326		1,746		9,942		2,399
Interest expense	(1,557)		—		(2,827)		—
Other income (expense), net	109		80		129		(55)
Total other income (expense), net	34,198		(48,334)		11,384		46,384
Net loss	$	(16,185)	$	(82,013)	$	(154,094)	$	(40,441)

Net loss per share, basic	$	(0.10)	$	(0.53)	$	(0.98)	$	(0.27)
Weighted average number of common shares outstanding, basic	159,829,716		153,332,007		157,559,138		152,497,010
Net loss per share, diluted	$	(0.29)	$	(0.53)	$	(1.00)	$	(0.55)
Weighted average number of common shares outstanding, diluted	161,371,417		153,332,007		158,260,393		153,773,271

See accompanying notes to these condensed consolidated financial statements.

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ENOVIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except share and per share amounts)

(Unaudited)


	Quarters Ended				Fiscal Years-to-Date Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022



Net loss	$	(16,185)	$	(82,013)	$	(154,094)	$	(40,441)
Other comprehensive income (loss), net of tax

Net unrealized gain (loss) on available-for-sale securities	11		—		(13)		—
Other comprehensive income (loss), net of tax	11		—		(13)		—
Total comprehensive loss	$	(16,174)	$	(82,013)	$	(154,107)	$	(40,441)

See accompanying notes to these condensed consolidated financial statements.

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ENOVIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance as of January 1, 2023	157,461,802	$	15	$	741,186	$	—	$	(384,774)	$	356,427
Issuance of common stock upon exercise of stock options	86,654	—		328		—		—		328
Early exercised stock options vested	—	1		82		—		—		83
RSUs vested, net of shares withheld for taxes	679,606	—		(777)		—		—		(777)
Repurchase of unvested restricted common stock	(138,599)	—		—		—		—		—
Stock-based compensation	—	—		29,653		—		—		29,653
Net loss	—	—		—		—		(73,603)		(73,603)
Balance as of April 2, 2023	158,089,463	16		770,472		—		(458,377)		312,111
Issuance of common stock upon exercise of stock options	93,921	—		643		—		—		643
Issuance of common stock under employee stock purchase plan	146,278	—		1,170		—		—		1,170
Early exercised stock options vested	—	—		14		—		—		14
RSUs vested, net of shares withheld for taxes	650,202	—		(448)		—		—		(448)
Repurchase of unvested restricted common stock	(68,445)	—		—		—		—		—
Stock-based compensation	—	—		15,374		—		—		15,374
Purchase of Capped Calls	—	—		(17,250)		—		—		(17,250)
Change in net unrealized loss on available-for-sale securities, net of tax	—	—		—		(24)		—		(24)

Net loss	—	—		—		—		(64,306)		(64,306)
Balance as of July 2, 2023	158,911,419	16		769,975		(24)		(522,683)		247,284

See accompanying notes to these condensed consolidated financial statements.

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ENOVIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Continued)

(In thousands, except share amounts)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Other Comprehensive Loss		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance as of July 2, 2023	158,911,419	$	16	$	769,975	$	(24)	$	(522,683)	$	247,284
Issuance of common stock upon exercise of stock options	954,674	—		8,260		—		—		8,260
Issuance of common stock subject to return	1,304,954	—		—		—		—		—
Early exercised stock options vested	—	—		22		—		—		22


RSUs vested, net of shares withheld for taxes	656,367	—		(1,762)		—		—		(1,762)
Repurchase of unvested restricted common stock	(161,737)	—		—		—		—		—
Stock-based compensation	—	—		14,845		—		—		14,845
Change in net unrealized loss on available-for-sale securities, net of tax	—	—		—		11		—		11
Net loss	—	—		—		—		(16,185)		(16,185)
Balance as of October 1, 2023	161,665,677	$	16	$	791,340	$	(13)	$	(538,868)	$	252,475

See accompanying notes to these condensed consolidated financial statements.

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ENOVIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (Continued)

(In thousands, except share amounts)

(Unaudited)


	Common Stock			Additional Paid-in Capital		Accumulated Deficit		Total Stockholders' Equity
	Shares	Amount
Balance as of January 2, 2022	152,272,287	$	15	$	659,254	$	(333,152)	$	326,117
Issuance of common stock upon exercise of stock options	91,910	—		200		—		200
Issuance of common stock upon exercise of common stock warrants	4,126,466	—		47,452		—		47,452
Early exercised stock option vested	—	—		42		—		42
RSUs vested	34,941	—		—		—		—
Repurchase of unvested restricted common stock	(105,886)	—		—		—		—
Stock-based compensation	—	—		4,536		—		4,536
Net income	—	—		—		42,707		42,707
Balance as of April 3, 2022	156,419,718	15		711,484		(290,445)		421,054
Issuance of common stock upon exercise of stock options	46,807	—		77		—		77
Issuance of common stock under employee stock purchase plan	126,574	—		1,113		—		1,113
Early exercised stock option vested	—	—		28		—		28
RSUs vested	115,990	—		—		—		—
Repurchase of unvested restricted common stock	(30,399)	—		—		—		—
Stock-based compensation	—	—		7,603		—		7,603
Net loss	—	—		—		(1,135)		(1,135)
Balance as of July 3, 2022	156,678,690	15		720,305		(291,580)		428,740
Issuance of common stock upon exercise of stock options	204,483	—		1,775		—		1,775
Early exercised stock option vested	—	—		28		—		28
RSUs vested	209,156	—		—		—		—
Repurchase of unvested restricted common stock	(14,730)	—		—		—		—
Stock-based compensation	—	—		9,753		—		9,753
Net loss	—	—		—		(82,013)		(82,013)
Balance as of October 2, 2022	157,077,599	$	15	$	731,861	$	(373,593)	$	358,283

See accompanying notes to these condensed consolidated financial statements.

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ENOVIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	Fiscal Years-to-Date Ended
	October 1, 2023		October 2, 2022
Cash flows from operating activities:
Net loss	$	(154,094)	$	(40,441)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation	10,566		4,388
Amortization of right-of-use assets	436		407
Accretion of discount on investments	(1,499)		—
Amortization of debt issuance costs	497		—
Stock-based compensation	57,832		22,117
Changes in fair value of common stock warrants	(4,140)		(44,040)
Impairment of equipment	4,411		—




Changes in operating assets and liabilities:
Accounts receivable	169		(6)
Inventory	418		(452)
Prepaid expenses and other assets	546		(2,004)
Deferred contract costs	—		3,015
Accounts payable	4,338		(192)
Accrued expenses and compensation	3,113		(122)
Deferred revenue	—		(3,527)

Other liabilities	(1)		(46)
Net cash used in operating activities	(77,408)		(60,903)
Cash flows from investing activities:
Purchase of property and equipment	(32,979)		(31,366)
Purchases of investments	(115,736)		—
Maturities of investments	16,700		—
Net cash used in investing activities	(132,015)		(31,366)
Cash flows from financing activities:


Proceeds from exercise of common stock warrants, net	—		52,828

Proceeds from issuance of Convertible Senior Notes	172,500		—

Payments of debt issuance costs	(5,251)		—
Purchase of Capped Calls	(17,250)		—

Payroll tax payments for shares withheld upon vesting of RSUs	(2,988)		—
Proceeds from the exercise of stock options	9,232		2,052
Proceeds from issuance of common stock under employee stock purchase plan	1,169		1,112

Repurchase of unvested restricted common stock	(23)		(9)
Net cash provided by financing activities	157,389		55,983

Change in cash, cash equivalents, and restricted cash	(52,034)		(36,286)
Cash and cash equivalents and restricted cash, beginning of period	322,976		385,418
Cash and cash equivalents, and restricted cash, end of period	$	270,942	$	349,132

See accompanying notes to these condensed consolidated financial statements.

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ENOVIX CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In thousands)

(Unaudited)


	Fiscal Years-to-Date Ended
	October 1, 2023		October 2, 2022
Supplemental cash flow data (Non-cash):


Purchase of property and equipment included in liabilities	$	19,324	$	4,689
Accrued acquisition costs	1,115		—
Accrued debt issuance costs	666		794

The following presents the Company’s cash, cash equivalents and restricted cash by category in the Company’s Condensed Consolidated Balance Sheets:


	Fiscal Years-to-Date Ended
	October 1, 2023		October 2, 2022
Cash and cash equivalents	$	270,817	$	349,007
Restricted cash included in prepaid expenses and other current assets	125		125
Total cash, cash equivalents, and restricted cash	$	270,942	$	349,132

See accompanying notes to these condensed consolidated financial statements.

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ENOVIX CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Note 1. Organization and Basis of Presentation

Organization

Enovix Corporation (“Enovix” or the “Company”) was incorporated in Delaware in 2006. The Company designs, develops, manufactures and commercializes next generation Lithium-ion, or Li-ion, battery cells that significantly increase the amount of energy density and storage capacity relative to conventional battery cells. Our batteries’ mechanical design, or “architecture,” allows us to use high performance chemistries while enabling safety and charge time advantages. The Company is headquartered in Fremont, California.

Prior to the second quarter of 2022, the Company was focused on the development and commercialization of its silicon-anode lithium-ion batteries. Beginning in the second quarter of 2022, the Company commenced its planned principal operations of commercial manufacturing and began its production of silicon-anode lithium-ion batteries or battery pack products, as well as generating product revenue in addition to service revenue from its engineering service contracts for the development of silicon-anode lithium-ion battery technology.

Note 2. Summary of Significant Accounting Policies

Basis of Presentation and Consolidation

The accompanying condensed consolidated financial statements are presented in accordance with accounting principles generally accepted in the United States (“GAAP”). The condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company did not have any income tax expenses for the periods presented.

Liquidity and Capital Resources

The Company has incurred operating losses and negative cash flows from operations since its inception through October 1, 2023 and expects to incur operating losses for the foreseeable future. As of October 1, 2023, the Company had a working capital of $331.6 million and an accumulated deficit of $538.9 million. In April 2023, we closed private offerings of $172.5 million aggregate principal amount of 3.0% convertible senior notes due 2028 (the “Convertible Senior Notes”). The net proceeds from the Convertible Senior Notes were approximately $166.6 million. The Company used approximately $17.3 million of the net proceeds from the offerings of the Convertible Senior Notes to pay the cost of the capped call transactions entered on April 20, 2023 in connection with such offerings. The Company will use the remaining net proceeds to build out a second battery cell manufacturing facility (“Fab2”) in Malaysia and fund the acquisition of production lines of the Company’s second-generation (“Gen2”) manufacturing equipment (“Gen2 Autolines”), and for working capital and other general corporate purposes. See Note 7 “Borrowings” for more information.

Based on the anticipated spending and timing of expenditures, the Company currently expects that its cash will be sufficient to meet its funding requirements over the next twelve months. Going forward, the Company may require additional financing for its future operations and expansion. The accompanying condensed consolidated financial statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.

Unaudited Interim Condensed Consolidated Financial Statements

The Condensed Consolidated Balance Sheet as of October 1, 2023, the Condensed Consolidated Statements of Operations, the Condensed Consolidated Statement of Comprehensive Income, the Condensed Consolidated Statements of Changes in Shareholders’ Equity and the Condensed Consolidated Statements of Cash Flows for the quarters and fiscal years-to-date ended October 1, 2023 and October 2, 2022 are unaudited. These accompanying unaudited condensed consolidated financial statements have been prepared pursuant to the rules and regulations of the SEC for interim financial reporting. In the opinion of management, these unaudited condensed consolidated financial statements reflect all adjustments, consisting of normal recurring items, considered necessary to present fairly the Company’s financial condition, results of operations, stockholders’ equity and cash flows for the periods presented above. The results of operations for the quarter and year-to-date ended October 1, 2023 are not necessarily indicative of the operating results for

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ENOVIX CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

the full year, and therefore should not be relied upon as an indicator of future results. The Condensed Consolidated Balance Sheet as of January 1, 2023 included herein was derived from the audited consolidated financial statements as of that date and the accompanying consolidated financial statements and related notes are included in the Company’s Annual Report on Form 10-K.

Use of Estimates

The preparation of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the condensed consolidated financial statements and accompanying notes during the reporting periods. Estimates and assumptions include but are not limited to: depreciable lives for property and equipment, valuation for inventory, the valuation allowance on deferred tax assets, assumptions used in stock-based compensation, incremental borrowing rate for operating right-of-use assets and lease liabilities, and estimates to fair value common stock warrants. Management bases its estimates on historical experience and on various other market-specific and relevant assumptions that it believes to be reasonable under the circumstances.

Summary of Significant Accounting Policies

Beginning in May 2023, the Company invested in marketable securities from time to time. In addition, during the third quarter of 2023, the Company acquired variable interests in a legal entity, which is considered as a variable interest entity (“VIE”), in connection with building out the Fab2 operations in Malaysia. For the assessment of the Company’s VIE, please refer to Note 13 “Variable Interest Entity” for more details. As a result of these activities, the Company made the following updates to the significant accounting policies disclosed in Note 2 “Summary of Significant Accounting Policies,” of the notes to the consolidated financial statements for the fiscal year ended January 1, 2023, included in the Company’s Annual Report on Form 10-K.

Investments

The Company’s investments consist of highly liquid fixed-income securities. The Company determines the appropriate classification of its investments at the time of purchase and reevaluates such designation at each balance sheet date. The Company has classified and accounted for its investments as available-for-sale securities as the Company may sell these securities at any time for use in its current operations or for other purposes, including prior to maturity.

Investments with original maturities greater than 90 days and remaining maturities of less than one year are normally classified within current assets on the Condensed Consolidated Balance Sheets. In addition, investments with maturities beyond one year at the time of purchase that are highly liquid in nature and represent the investment of cash that is available for current operations are classified as current assets.

Unrealized gains and losses on these investments are reported as a separate component of Accumulated other comprehensive loss until the security is sold, the security has matured, or the security has realized. Realized gains and losses on these investments are calculated based on the specific identification method and would be reclassified from Accumulated other comprehensive loss to Other income (expense), net in the Condensed Consolidated Statements of Operations.

The Company has designated all investments as available-for-sale and, therefore, the investments are subject to periodic impairment under the available-for-sale debt security impairment model. Available-for-sale debt securities in an unrealized loss position are written down to fair value through a charge to Other income (expense), net in the Condensed Consolidated Statements of Operations if the Company intends to sell the security or it is more likely than not the Company will be required to sell the security before recovery of its amortized cost basis. The Company evaluates the remaining securities to determine what amount of the excess, if any, is caused by expected credit losses. A decline in fair value attributable to expected credit losses is recorded to Other income (expense), net, while any portion of the loss related to non-credit factors is recorded in accumulated other comprehensive income (loss). For securities sold prior to maturity, the cost of the securities sold is based on the specific identification method. Realized gains and losses on the sale of investments are recorded in Other income (expense), net in the Condensed Consolidated Statements of Operations.

Variable Interest Entity

The Company determines at the inception of each arrangement whether an entity in which the Company holds an investment or in which the Company has other variable interests is considered a VIE. The Company consolidates the VIE’s

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(Unaudited)

balance sheet and results of operations into its condensed consolidated financials when the Company deems to be the primary beneficiary that meets both of the following criteria: (1) the Company has the power to direct activities that most significantly affect the VIE’s economic performance and (2) the Company has the obligation to absorb losses or the right to receive benefits of the VIE that in either case could potentially be significant to the VIE.

The Company continually reassesses whether the Company is the primary beneficiary of a VIE for the consolidation analysis. If the Company is not the primary beneficiary in a VIE, the Company accounts for the investment or other variable interest in accordance with applicable GAAP. Please refer to Note 13 “Variable Interest Entity” for more details.

The Company will reconsider whether the entity is still a VIE if certain reconsideration events occur as defined in the Accounting Standards Codification (“ASC”) 810, Consolidation, issued by the Financial Accounting Standards Board (“FASB”).

Foreign Currency Transactions

The functional currency of the Company’s international subsidiaries is the U.S. dollar. Monetary assets and liabilities of the Company's international subsidiaries that are denominated in foreign currency are remeasured into U.S. dollars at period-end exchange rates. Non-monetary assets and liabilities that are denominated in the foreign currency are remeasured into U.S. dollars at the historical rates. Foreign transaction gains and losses resulting from the conversion of the transaction currency to functional currency and remeasurement of foreign currency accounts are reflected in Other income (expense), net of the Condensed Consolidated Statements of Operations. For the quarter and fiscal year-to-date ended October 1, 2023, the Company recorded an immaterial amount of net foreign transaction gains in Other income (expense), net of the Condensed Consolidated Statements of Operations.

Note 3. Fair Value Measurement

The fair value of the Company’s financial assets and liabilities are determined in accordance with the fair value hierarchy established in ASC 820, Fair Value Measurements, issued by the FASB. The fair value hierarchy of ASC 820 requires an entity to maximize the use of observable inputs when measuring fair value and classifies those inputs into three levels:


Level 1:			Observable inputs, such as quoted prices (unadjusted) in active markets for identical assets or liabilities at the measurement date.
Level 2:			Observable inputs, other than Level 1 prices, such as quoted prices in active markets for similar assets and liabilities, quoted prices in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3:			Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company's financial instruments consist primarily of cash and cash equivalents, short-term investments, accounts receivable, accounts payable and warrant liabilities. Cash and cash equivalents are reported at their respective fair values on the Company's Condensed Consolidated Balance Sheets. The following table details the fair value measurements of assets and liabilities that were measured at fair value on a recurring basis based on the following three-tiered fair value hierarchy per ASC 820, Fair Value Measurement, as of October 1, 2023 and January 1, 2023 (in thousands).

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(Unaudited)


	Fair Value Measurement using
	Level 1		Level 2		Level 3		Total Fair Value
As of October 1, 2023
Assets:
Cash equivalents:
Money Market Funds	$	29,259	$	—	$	—	$	29,259

Short-term investments:
U.S. Treasuries	—		100,522		—		100,522


Liabilities:
Private Placement Warrants	$	—	$	—	$	44,940	$	44,940

As of January 1, 2023
Assets:
Cash equivalents:
Money Market Funds	$	319,946	$	—	$	—	$	319,946
Liabilities:
Private Placement Warrants	$	—	$	—	$	49,080	$	49,080

Cash Equivalents and Short-term Investments:

The following is a summary of cash equivalents and short-term investments (in thousands).


									Reported as
	Amortized Cost		Unrealized Gain		Unrealized Loss		Estimated Fair Value		Cash Equivalents		Short-term Investments
As of October 1, 2023
Money Market Funds	$	29,259	$	—	$	—	$	29,259	$	29,259	$	—
U.S. Treasuries	100,535		2		(15)		100,522		—		100,522
Total	$	129,794	$	2	$	(15)	$	129,781	$	29,259	$	100,522

As of January 1, 2023
Money Market Funds	$	319,946	$	—	$	—	$	319,946	$	319,946	$	—

As of October 1, 2023, the short-term investments have contractual maturity due within one year.

Private Placement Warrants

The Company’s liabilities are measured at fair value on a recurring basis, including 6,000,000 warrants that were held by Rodgers Capital, LLC (the “Sponsor”) and certain of its members (the “Private Placement Warrants”). The fair value of the Private Placement Warrants is considered a Level 3 valuation and is determined using the Black-Scholes valuation model. As of October 1, 2023, the fair value of the Private Placement Warrants was $7.49 per share with an exercise price of $11.50 per share. The following tables summarize the changes for Level 3 items measured at fair value on a recurring basis using significant unobservable inputs (in thousands).

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(Unaudited)


	Private Placement Warrants
Fair value as of January 1, 2023	$	49,080


Change in fair value	(4,140)
Fair value as of October 1, 2023	$	44,940


	Private Placement Warrants
Fair value as of January 2, 2022	$	124,260


Change in fair value	(44,040)
Fair value as of October 2, 2022	$	80,220

The following table summarizes the key assumptions used for determining the fair value of the Private Placement warrants.


	Private Placement Warrants Outstanding as of October 1, 2023	Private Placement Warrants Outstanding as of January 1, 2023
Expected term (in years)	2.8	3.5
Expected volatility	90.0%	92.5%
Risk-free interest rate	4.8%	4.2%
Expected dividend rate	0.0%	0.0%

Convertible Senior Notes

The Company considers the fair value of the Convertible Senior Notes to be a Level 2 measurement as they are not actively traded in the market. As of October 1, 2023, the fair value of the Convertible Senior Notes was $183.3 million.

Note 4. Property and Equipment

Property and equipment are stated at cost, net of accumulated depreciation. Depreciation is computed on a straight-line basis over the estimated useful lives of the assets. Property and equipment as of October 1, 2023 and January 1, 2023, consisted of the following (in thousands).


	October 1, 2023		January 1, 2023
Machinery and equipment	$	74,565	$	55,694
Office equipment and software	2,412		1,586
Furniture and fixtures	829		771
Leasehold improvements	30,012		24,565
Construction in process	49,956		33,268
Total property and equipment	157,774		115,884
Less: accumulated depreciation	(21,061)		(12,016)
Property and equipment, net	$	136,713	$	103,868

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(Unaudited)

The following table summarizes the depreciation and amortization expenses related to property and equipment, which are recorded within cost of revenue, research and development expense and selling, general and administrative expense in the Condensed Consolidated Statements of Operations (in thousands).


	Quarters Ended				Fiscal Years-to-Date Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Depreciation expense	$	3,588	$	2,857	$	10,566	$	4,388

Equipment Impairment

During the second quarter of 2023, the Company disposed a group of machinery and equipment and recorded an impairment charge of $4.4 million. There was no impairment charge recorded in the quarter ended October 1, 2023 and the impairment charge for the fiscal year-to-date ended October 1, 2023 was $4.4 million. As of October 1, 2023 and January 1, 2023, $0.6 million and $1.7 million of the impairment charges, respectively, were recorded as accrued expenses on the Condensed Consolidated Balance Sheet. These impaired assets were previously capitalized as “Machinery and equipment” category of property and equipment, net on the Condensed Consolidated Balance Sheets. No impairment of equipment was recorded for the corresponding periods in the prior year.

Note 5. Inventory

Inventory is stated at the lower of cost or net realizable value (“NRV”) on a first-in and first-out basis. Cost includes materials, labor, and normal manufacturing overhead related to the purchase and production of inventories. The Company values its inventory periodically to the lower of cost or NRV and records the difference to cost of revenue. Inventory consists of the following components (in thousands).


	October 1, 2023		January 1, 2023
Raw materials	$	—	$	481
Work-in-process	15		106
Finished goods	200		47
Total inventory	$	215	$	634

In connection with the restructuring plan as described in the Note 15 “Restructuring Costs,” the Company wrote off $0.6 million of raw materials as Restructuring cost in the Condensed Consolidated Statements of Operations for the quarter and fiscal year-to-day ended October 1, 2023. There was no write-off of inventory recorded for the corresponding periods in the prior year.

Note 6. Leases

The Company leases its headquarters, engineering and manufacturing space in Fremont, California under a single non-cancellable operating lease with an expiration date of August 31, 2030. In March 2021, the Company entered into a new agreement to lease office space in Fremont, California under a non-cancellable operating lease that expires in April 2026 with an option to extend for five years.

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(Unaudited)

The components of lease costs were as follows (in thousands):


	Quarters Ended				Fiscal Years-to-Date Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Operating lease cost	$	478	$	453	$	1,428	$	1,292

Supplemental lease information:

As of

Operating leases

October 1, 2023

January 1, 2023

Weighted-average remaining lease term

6.9 years

7.7 years

Weighted-average discount rate

6.8%

Supplemental cash flow information related to leases are as follows (in thousands):


	Fiscal Years-to-Date Ended
	October 1, 2023		October 2, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	1,053	$	1,022

Maturities of Lease Liabilities

The following is a schedule of maturities of lease liabilities as of October 1, 2023 (in thousands).


	Operating lease
2023 (remaining six months)	$	353
2024	1,449
2025	1,492
2026	1,491
2027	1,513
Thereafter	4,262
Total	10,560
Less: imputed interest	(2,111)
Present value of lease liabilities	$	8,449

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 7. Borrowings

The Company’s long-term debt, net consists of the following (in thousands).


	Annual Interest Rate		Maturity Date	As of October 1, 2023
Convertible Senior Notes	3.0	%	May 1, 2028	$	172,500
Less: unamortized debt issuance costs				(5,420)
Long-term debt, net				$	167,080

Convertible Senior Notes

On April 20, 2023, the Company issued $172.5 million aggregate principal amount of Convertible Senior Notes, pursuant to an indenture, dated as of April 20, 2023 (the “Indenture”), between the Company and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”). The offerings and sale of the Convertible Senior Notes were made by the Company to the initial purchasers in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended (the “Securities Act”), for resale by the initial purchasers to qualified institutional buyers (as defined in the Securities Act) pursuant to the exemption from registration provided by Rule 144A under the Securities Act. The issuance included the exercise in full by the initial purchasers of their option to purchase an additional $22.5 million aggregate principal amount of the Convertible Senior Notes. $10.0 million principal amount of the Convertible Senior Notes (the “Affiliate Notes”) were issued to an entity affiliated with Thurman John “T.J.” Rodgers, the Company’s Chairman in a concurrent private placement.

The Convertible Senior Notes are unsecured obligations of the Company and bear interest at a rate of 3.0% per year from April 20, 2023, and will be payable semiannually in arrears on May 1 and November 1 of each year, beginning on November 1, 2023. The Convertible Senior Notes will mature on May 1, 2028 unless earlier converted, redeemed or repurchased.

The net proceeds from the offerings were approximately $166.6 million. The Company used approximately $17.3 million of the net proceeds from the offerings to pay the cost of the capped call transactions entered on April 20, 2023 in connection with the offerings. The Company will use the remaining net proceeds to build out Fab2 in Malaysia and fund the acquisition of Gen2 Autolines, and for working capital and other general corporate purposes.

The conversion rate for the Convertible Senior Notes will initially be 64.0800 shares of the Company’s common stock per $1,000 principal amount of the Convertible Senior Notes, which is equivalent to an initial conversion price of $15.61 per share of common stock, subject to adjustment under certain circumstances in accordance with the terms of the Indenture.

Holders of the Convertible Senior Notes may convert all or any portion of their notes, in integral multiples of $1,000 principal amount, at their option at any time prior to the close of business on the business day immediately preceding February 1, 2028 only under the following conditions:

•during any fiscal quarter commencing after the fiscal quarter ending on October 1, 2023 (and only during such fiscal quarter), if the last reported sale price of the Company’s common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding fiscal quarter is greater than or equal to 130% of the conversion price on each applicable trading day;

•during the five business day period after any ten consecutive trading day period (the “measurement period”) in which the “trading price” (as defined in the Indenture) per $1,000 principal amount of notes for each trading day of the measurement period was less than 98% of the product of the last reported sale price of the Company’s common stock and the conversion rate on each such trading day;

•if the Company calls the Convertible Senior Notes for redemption, at any time prior to the close of business on the scheduled trading day immediately preceding the redemption date, but only with respect to the Convertible Senior Notes called (or deemed called) for redemption; or

•upon the occurrence of specified corporate events as set forth in the Indenture.

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On or after February 1, 2028 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their notes, at any time, in integral multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing conditions.

Upon conversion, the Company may satisfy its conversion obligation by paying or delivering, as the case may be, cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock, at the Company’s election, in the manner and subject to the terms and conditions provided in the Indenture.

The Company may not redeem the Convertible Senior Notes prior to May 6, 2026. The Company may redeem for cash all or any portion of the Convertible Senior Notes, at its option, on or after May 6, 2026, if the liquidity condition is satisfied and the last reported sale price of the Company’s common stock has been at least 130% of the conversion price then in effect for at least 20 trading days (whether or not consecutive) during any 30 consecutive trading day period (including the last trading day of such period) ending on, and including, the trading day immediately preceding the date on which the Company provides notice of redemption at a redemption price equal to 100% of the principal amount of the notes to be redeemed, plus accrued and unpaid interest to, but excluding, the redemption date. If the Company redeem less than all the outstanding notes, at least $100.0 million aggregate principal amount of notes must be outstanding and not subject to redemption as of, and after giving effect to, delivery of the relevant redemption notice.

If the Company undergoes a “fundamental change,” as defined in the Indenture, fundamental change permits the holders of the Convertible Senior Notes to require the Company to repurchase the Convertible Senior Notes, subject to certain terms and conditions as defined in the Indenture. Holders may require the Company to repurchase for cash all or any portion of their notes in principal amounts of $1,000 or an integral multiple thereof. The fundamental change repurchase price will be equal to 100% of the principal amount of the notes to be repurchased, plus accrued and unpaid interest to, but excluding, the fundamental change repurchase date.

In accounting for the issuance of the Convertible Senior Notes, the Company accounted for the Convertible Senior Notes as liability instruments and considered it as single units of account pursuant to the Accounting Standards Update (“ASU”) No. 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40), (“ASU 2020-06”). Accrued interest for the Convertible Senior Notes was recorded as Accrued expenses on the Condensed Consolidated Balance Sheet. Costs incurred in connection with the issuance of debt are deferred and amortized as interest expense over the term of the related debt using the effective interest method. To the extent that the debt is outstanding, the debt issuance costs were recorded as a reduction to Long-term debt, net on the Condensed Consolidated Balance Sheet. For the fiscal year-to-date ended October 1, 2023, the Company incurred approximately $5.9 million of debt issuance costs relating to the issuance of the Convertible Senior Notes. There was no debt issuance cost recorded for the quarter ended October 1, 2023.

The following table summarizes the interest expenses related to Convertible Senior Notes, which are recorded within Interest expense in the Condensed Consolidated Statements of Operations (in thousands).


	October 1, 2023
	Quarter Ended		Fiscal Year-to-Date Ended
Coupon interest	$	1,283	$	2,326
Amortization of debt issuance costs	275		497
Total interest expense on Convertible Senior Notes	$	1,558	$	2,823

As of October 1, 2023, the Company had $2.3 million of accrued interest liability. There was no accrued interest liability as of January 1, 2023.

Capped Call Transactions

In connection with the issuance of the Convertible Senior Notes, the Company paid approximately $17.3 million to enter into capped call transactions with certain financial institutions (the “Capped Calls”) in the second quarter of 2023. The Capped Calls are generally expected to reduce the potential dilution to the Company's common stock upon any conversion of the Convertible Senior Notes and/or offset any cash payments the Company is required to make in excess of the principal amount of the converted Convertible Senior Notes, as the case may be, with such reduction and/or offset subject to a cap based on a cap price initially equal to $21.17 per share (which represents a premium of 56.0% over the last reported sale price of the Company's common stock of $13.57 per share on The Nasdaq Global Select Market on April 17, 2023), and is subject to certain adjustments under the terms of the Capped Calls. The Company recorded the Capped Calls

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

as a reduction of stockholders' equity, not as derivatives, as the Capped Calls met certain accounting criteria. No subsequent remeasurement is required.

Note 8. Commitments and Contingencies

Purchase Commitments

As of October 1, 2023 and January 1, 2023, the Company’s commitments included approximately $73.7 million and $22.7 million, respectively, of the Company’s open purchase orders and contractual obligations that occurred in the ordinary course of business, including commitments with contract manufacturers and suppliers for which the Company has not received the goods or services, commitments for capital expenditures and construction-related activities for which the Company has not received the services. Although open purchase orders are considered enforceable and legally binding, the terms generally allow the Company the option to cancel, reschedule, and adjust its requirements based on its business needs prior to the delivery of goods or performance of services. For lease obligations, please refer to Note 6 “Leases” for more details. For the Convertible Senior Notes obligation, please refer to Note 7 “Borrowings” for more details.

Performance Obligations

As of October 1, 2023, the Company had $3.8 million of performance obligations, which comprised of total deferred revenue and customer order deposits. Currently, the Company does not expect to recognize revenue from deferred revenue within the next twelve months.

Litigation

From time to time, the Company is involved in a variety of claims, lawsuits, investigations, and proceedings relating to securities laws, product liability, intellectual property, commercial, insurance, contract disputes, employment, and other matters. Certain of these lawsuits and claims are described in further detail below. The Company intends to defend vigorously against all of the following allegations.

A liability and related charge to earnings are recorded in the condensed consolidated financial statements for legal contingencies when the loss is considered probable and the amount can be reasonably estimated. The assessment is re-evaluated each accounting period and is based on all available information, including the impact of negotiations, settlements, rulings, advice of legal counsel, and other information and events pertaining to each case. The outcomes of outstanding legal matters are inherently unpredictable and subject to uncertainties. While there can be no assurance of favorable outcome of these legal matters, we currently believe that the outcome of these matters will not have a material adverse effect on the Company’s results of operations, liquidity or financial position.

Sopheap Prak et al. v. Enovix Corporation et al., 22CV005846, Superior Court of California, Alameda County

On January 21, 2022, two former machine operator employees filed a putative wage and hour class action lawsuit against Enovix and co-defendant Legendary Staffing, Inc. in the Superior Court of California, County of Alameda. The case is captioned Sopheak Prak & Ricardo Pimentel v Enovix Corporation and Legendary Staffing, Inc., 22CV005846. The Prak complaint alleges, among other things, on a putative class-wide basis, that the defendants failed to pay all overtime wages and committed meal period, rest period and wage statement violations under the California Labor Code and applicable Wage Orders. The plaintiffs are seeking unpaid wages, statutory penalties and interest and reasonable costs and attorney fees. In September 2022, the Company began the mediation process. Based on the current knowledge of the legal proceeding, an estimate of possible loss liability was recorded on the Condensed Consolidated Balance Sheet as of October 1, 2023.

Kody Walker v. Enovix Corporation, 23CV028923. Superior Court of California, Alameda County

On March 8, 2023, a former employee filed a putative class action lawsuit against Enovix in the Superior Court of California, County of Alameda (the “Walker Complaint”). The Walker Complaint alleges, among other things, on a putative class-wide basis, that the Company failed to pay minimum wages, overtime and sick time wages, failed to reimburse employees for required expenses, failed to provide meal and rest periods and issued inaccurate wage statement under the California Labor Code and applicable Wage Orders. The Walker Complaint asserts on an individual basis that Walker was constructively discharged. The plaintiff seeks unpaid wages, statutory penalties and interest and reasonable costs and attorney fees.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Securities Class Action Compliant

On January 6, 2023, a purported Company stockholder filed a securities class action complaint in the U.S. District Court for the Northern District of California against the Company and certain of its current and former officers and directors. The complaint alleges that defendants violated Sections 10(b) and 20(a) of the Exchange Act of 1934 and Rule 10b-5 promulgated thereunder by making material misstatements or omissions in public statements related to the Company’s manufacturing scaleups and testing of new equipment. A substantially identical complaint was filed on January 25, 2023 by another purported Company stockholder. Following consolidation of the cases and court appointment of two purported Company stockholder lead plaintiffs, a consolidated complaint alleging substantially similar claims, including allegations that the defendants made material misstatements or omissions in public statements related to testing of new equipment, was filed on July 7, 2023. The consolidated complaint seeks unspecified damages, interest, fees and costs on behalf of all persons and entities who purchased and/or acquired shares of the Company or RSVAC’s common stock between June 24, 2021 and January 3, 2023. The Company and the named officers and directors moved to dismiss the complaint on September 15, 2023. Based on currently available information, the Company is unable to make a reasonable estimate of loss or range of losses, if any, arising from this matter.

Guarantees and Indemnifications

In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and provide for general indemnifications. The Company’s exposure under these agreements is unknown because it involves claims that may be made against the Company in the future but have not yet been made. To date, the Company has not paid any claims or been required to defend any action related to its indemnification obligations. However, the Company may record charges in the future as a result of these indemnification obligations.

The Company also has indemnification obligations to its officers and directors for specified events or occurrences, subject to some limits, while they are serving at the Company’s request in such capacities. The Company believes the fair value of these indemnification agreements is minimal. Accordingly, the Company has not recorded any liabilities relating to these obligations for the period presented.

Note 9. Warrants

Common Stock Warrants

On July 14, 2021, Enovix Corporation, a Delaware Corporation, Rodgers Silicon Valley Acquisition Corp. (“RSVAC”), and RSVAC Merger Sub Inc., a Delaware Corporation and wholly owned subsidiary of RSVAC, consummated the closing of the transactions contemplated by the Agreement and Plan of Merger, dated February 22, 2021 (the “Business Combination”). In connection with the Business Combination in July 2021, the Company assumed 17,500,000 common stock warrants outstanding, which consisted of 11,500,000 warrants held by third-party investors (the “Public Warrants”) and 6,000,000 Private Placement Warrants. The Public Warrants met the criteria for equity classification and the Private Placement Warrants are classified as liability. In the first quarter of fiscal year 2022, the Public Warrants were either exercised or redeemed. As of October 1, 2023 and January 1, 2023, there were no Public Warrants outstanding.

Private Placement Warrants

The 6,000,000 Private Placement Warrants were originally issued in a private placement to the initial stockholder of the Sponsor in connection with the initial public offering of RSVAC. Each whole Private Placement Warrant became exercisable for one whole share of the Company's common stock at a price of $11.50 per share on December 5, 2021. As of October 1, 2023 and January 1, 2023, the Company had 6,000,000 Private Placement Warrants outstanding. See Note 3 “Fair Value Measurement” for more information.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Note 10. Net Loss per Share

The following table sets forth the computation of the Company’s basic and diluted net EPS of common stock for the periods presented below (in thousands, except share and per share amount).


	Quarters Ended				Fiscal Years-to-Date Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022

Numerator:
Net loss attributable to common stockholders - basic	$	(16,185)	$	(82,013)	$	(154,094)	$	(40,441)

Decrease in fair value of Private Placement Warrants	(31,320)		—		(4,140)		(44,040)
Net loss attributable to common stockholders - diluted	$	(47,505)	$	(82,013)	$	(158,234)	$	(84,481)

Denominator:
Weighted-average shares outstanding used in computing net loss per share of common stock, basic	159,829,716		153,332,007		157,559,138		152,497,010

Dilutive effect of Private Placement Warrants	1,541,701		—		701,255		1,276,261
Weighted-average shares outstanding used in computing net loss per share of common stock, diluted	161,371,417		153,332,007		158,260,393		153,773,271

Net loss per share of common stock:
Basic	$	(0.10)	$	(0.53)	$	(0.98)	$	(0.27)
Diluted	$	(0.29)	$	(0.53)	$	(1.00)	$	(0.55)

The following table discloses shares of the securities that were not included in the diluted EPS calculation above because they are anti-dilutive for the periods presented above.


	Quarters Ended		Fiscal Years-to-Date Ended
	October 1, 2023	October 2, 2022	October 1, 2023	October 2, 2022
Stock options outstanding	3,075,138	5,083,643	3,075,138	5,083,643
Restricted stock units and performance restricted stock units outstanding	12,602,239	5,933,914	12,602,239	5,933,914
Assumed conversion of Convertible Senior Notes	11,053,800	—	6,608,868	—
Private Placement Warrants outstanding	—	6,000,000	—	—

Employee stock purchase plan estimated shares	243,474	380,847	243,474	380,847

Note 11. Stock-based Compensation

The Company issues equity awards to employees and non-employees in the form of stock options, restricted stock units (“RSUs”) and performance based RSUs (“PRSUs”). Additionally, the Company also offers an employee stock purchase plan (“ESPP”) to its eligible employees. The Company uses Black-Scholes option pricing model to value its stock

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ENOVIX CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

options granted and the estimated shares to be purchased under the ESPP. For both RSUs and PRSUs, the Company uses its common stock price, which is the last reported sales price on the grant date to value those securities.

In general, the Company recognizes its stock-based compensation expense on a straight-line basis over the requisite service period and records forfeitures as they occur. For PRSUs, the Company uses the graded vesting method to calculate the stock-based compensation expense. At each reporting period, the Company would recognize and adjust the stock-based compensation expense based on its probability assessment in meeting its PRSUs' performance conditions.

Stock-based Compensation Expense

The following table summarizes the total stock-based compensation expense, by operating expense category, recognized in the Condensed Consolidated Statements of Operations for the periods presented below (in thousands).


	Quarters Ended				Fiscal Years-to-Date Ended
	October 1, 2023		October 2, 2022		October 1, 2023		October 2, 2022
Cost of revenue	$	2,396	$	1,067	$	5,001	$	1,317
Research and development	4,949		3,372		22,072		9,705
Selling, general and administrative	5,929		4,260		30,400		11,095
Restructuring cost	359		—		359		—
Total stock-based compensation expense	$	13,633	$	8,699	$	57,832	$	22,117

For the fiscal years-to-date ended October 1, 2023 and October 2, 2022, the Company capitalized $0.8 million and $1.2 million, respectively, of stock-based compensation as property and equipment, net on the Condensed Consolidated Balance Sheet. There was no recognized tax benefit related to stock-based compensation for the periods presented. In addition, the Company accrued an immaterial amount of bonus to be settled in equity awards as accrued compensation on the Condensed Consolidated Balance Sheet as of October 1, 2023.

As of October 1, 2023, there was approximately $140.1 million of total unrecognized stock-based compensation expense related to unvested equity awards, which are expected to be recognized over a weighted-average period of 3.9 years. As of October 1, 2023, there was approximately $0.5 million of total unrecognized stock-based compensation related to the ESPP, which is expected to be recognized over a period of 1.1 years.

Equity Award Modification

For the first quarter of 2023, in connection with the retirement or resignation of several of the Company's management team members, including the Company's former Chief Executive Officer, the Company evaluated the change in employment status in accordance with ASC 718, Compensation - Stock Compensation. The Company concluded that the change in status impacted the vesting conditions as the term of equity award exercise period was extended and certain of the equity awards were accelerated and vested immediately. For the quarter ended October 1, 2023, there was no equity award modification. For the fiscal year-to-date ended October 1, 2023, the Company recognized $21.1 million of stock-based compensation expense related to the modifications. There is no equity modification occurred for the corresponding period last year.

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ENOVIX CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Stock Option Activity

The following table summarizes stock option activities for the fiscal year-to-date ended October 1, 2023 (in thousands, except share and per share amount).


	Number of Options Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Life (Years)	Aggregate Intrinsic Value (1) (2)
Balances as of January 1, 2023	5,034,282	$	9.07

Exercised	(1,135,249)	8.13			$	13,446
Forfeited	(823,895)	9.20
Balances as of October 1, 2023	3,075,138	$	9.39	7.5	$	11,166


(1)			The intrinsic value of options exercised is based upon the value of the Company’s stock at exercise.
(2)			The aggregate intrinsic value of the stock options outstanding as of October 1, 2023 represents the value of the Company’s closing stock price at $12.55 on the last trading day of the quarter ended October 1, 2023 in excess of the exercise price multiplied by the number of options outstanding.

Unvested early exercised stock options which are subject to repurchase by the Company are not considered participating securities as those shares do not have non-forfeitable rights to dividends or dividend equivalents. Unvested early exercised stock options are not considered outstanding for purposes of the weighted average outstanding share calculation until they vest.

As of October 1, 2023, 657,981 shares remained subject to the Company’s right of repurchase as a result of early exercised stock options. The remaining liability related to early exercised shares as of October 1, 2023 was immaterial and was recorded in other current and non-current liabilities in the Condensed Consolidated Balance Sheets.

Issuance of Common Stock Subject to Return

In connection with certain early exercised stock options, during the quarter ended October 1, 2023, the Company’s transfer agent erroneously issued an additional 1.3 million shares of common stock to several former executive officers as a result of an administrative issue. Based on the Company’s review and assessment as of October 1, 2023, the Company’s loss associated with this common stock issuance was approximately $22.4 million. Currently, the Company expects a full recovery of these common stock shares from the former executive officers. Both the issuance of these shares related to the loss and the corresponding receivable from the probable recovery were recorded as additional paid-in capital on the Condensed Consolidated Balance Sheet as of October 1, 2023. The loss amount and the offsetting probable recovery amount resulted in no impact to the Condensed Consolidated Statement of Operations for the quarter and fiscal year-to-date ended October 1, 2023. This estimate is based on the current known information available, which it is possible to change in the future.

Restricted Stock Unit and Performance Restricted Stock Unit Activities

The following table summarizes RSUs and PRSUs activities for the fiscal year-to-date ended October 1, 2023 (in thousands, except share and per share amount).

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ENOVIX CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)


	RSUs			PRSUs
	Number of Shares Outstanding	Weighted Average Grant Date Fair Value		Number of Shares Outstanding	Weighted Average Grant Date Fair Value
Issued and unvested shares balances as of January 1, 2023	5,910,097	$	14.11	1,461,061	$	13.41
Granted	9,417,880	10.98		769,006	13.13
Vested	(2,018,296)	13.29		(189,251)	13.41
Forfeited	(1,245,122)	13.16		(1,503,136)	13.35
Issued and unvested shares outstanding as of October 1, 2023	12,064,559	$	11.90	537,680	$	13.17

Note 12. Related Party

Employment Relationship

As of October 1, 2023, the Company employed two family members of the Company’s former Chief Executive Officer, who perform engineering work in the Fremont facility.

Affiliate Notes

On April 20, 2023, the Company issued $172.5 million aggregate principal amount of Convertible Senior Notes, which included $10.0 million principal amount of the Affiliate Notes that were issued to an entity affiliated with Thurman John “T.J.” Rodgers, the Company’s Chairman, in a concurrent private placement. The Affiliate Notes were recorded in Long-term debt, net on the Company’s Condensed Consolidated Balance Sheets. For the quarter and fiscal year-to-date ended October 1, 2023, the Company recorded $0.1 million of interest expense related to the Affiliate Notes in the Company’s Condensed Consolidated Statements of Operations. See Note 7 “Borrowings” for more information.

Note 13. Variable Interest Entity

YBS Agreement

On July 26, 2023, the Company entered into a manufacturing agreement (the “Agreement”) with YBS International Berhad (“YBS”), a Malaysia-based investment holding company with segments including electronic manufacturing and assembly, high-precision engineering, precision machining and stamping, among others.

The Company and YBS agreed to share an initial investment of $100.0 million for the Gen2 Autoline 1 equipment and facilitation costs, as set out in the Agreement. Pursuant to the terms of the Agreement, the Company shall contribute 30% of the initial investment and YBS has the obligation to finance the remaining 70%. YBS assigned Orifast Solution Sdn Bhd (“OSSB”), a subsidiary, to manufacture lithium-ion batteries for Enovix under the terms and conditions of the Agreement. OSSB obtained $70.0 million of foreign currency term loan (the “Term Loan”) in financing for manufacturing operations under the Agreement from OCBC Bank (Malaysia) Berhad (“OCBC”). The Term Loan is expected to be repaid within six years with a 12 months grace period.

Pricing under the Agreement is set on a cost-plus basis and the Company is subject to a minimum commitment pursuant to the Agreement. At any time during the first seven years of the Agreement’s term, the Company reserves the right to purchase the Gen2 Autoline 1 by repaying the equipment cost, net of depreciation, as defined in the Agreement. The Company also bears the early repayment penalty fee imposed by OCBC, if any. The term of the Agreement is for ten years and automatically extends for an additional five years.

On September 13, 2023, the Company entered into a cash deposit agreement with OCBC to collateralize the Term Loan and the deposit will be placed in an interest-bearing account with an interest rate on par with the loan rate of the Term

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ENOVIX CORPORATION

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

Loan. The Company will deposit sufficient collateral for the Term Loan. As of October 1, 2023, there is no outstanding balance of the Term Loan and no deposit was made to OCBC for the collateralization.

Consolidated Variable Interest Entity

The Company consolidates a VIE when it has the power to direct the activities that most significantly impact the VIE’s economic performance and the obligation to absorb losses or the right to receive benefits of the VIE, which could potentially be significant to the VIE, and, as a result, is considered the primary beneficiary of the VIE. As of October 1, 2023, the Company concluded that OSSB is considered a VIE and the Company is the primary beneficiary of OSSB based on certain assumptions and judgments made by the Company. As of October 1, 2023, the Company did not have an equity investment in OSSB. In accordance with GAAP, the Company consolidates 100% of OSSB financials. During the quarter ended and fiscal year-to-date ended October 1, 2023, OSSB had immaterial operating activities.

Note 14. Acquisition

On September 18, 2023, the Company entered into a stock purchase agreement (the “Stock Purchase Agreement”) with Rene Limited, a corporation incorporated under the laws of the Republic of Korea (the “Seller”). On October 31, 2023, the Company closed the transaction contemplated by the Stock Purchase Agreement (the “Closing”) to purchase Routejade, Inc. (“Routejade”), a corporation incorporated under the laws of Republic of Korea.

The total estimated purchase consideration of such transaction consists of cash consideration in the amount of approximately $15.8 million and 5,923,521 shares of common stock of the Company, par value $0.0001, for the purchase of substantially all of the outstanding shares of Routejade (the “Routejade Acquisition”). This acquisition constitutes a business acquisition under the accounting standard for business combinations and, therefore, will be accounted for as a business combination using the acquisition method of accounting. Goodwill from this acquisition is not expected to be deductible for tax purposes. The valuation of assets acquired and liabilities assumed are still being appraised by a third-party and as such, the purchase price allocation is not yet complete.

For the quarter and fiscal year-to-date ended October 1, 2023, the Company recorded approximately $1.1 million of acquisition costs, which were included in Selling, general and administrative of the Condensed Consolidated Statements of Operations.

Note 15. Restructuring Costs

Strategic Realignment of Fab1

On October 3, 2023, the Company announced that it initiated a strategic realignment of the Company’s first production line (“Fab1”) in Fremont designed to refocus the facility from a manufacturing hub to its “Center for Innovation,” focused on new product development, including a plan of workforce reduction. Currently, the Company expects this restructuring plan to be substantially completed in the fourth quarter of 2023.

In connection with such strategic realignment, the Company recorded approximately $3.0 million of restructuring costs for the quarter and fiscal year-to-date ended October 1, 2023, which consisted of severance, termination benefits, stock-based compensation expense and inventory costs. These restructuring costs were reflected in Restructuring cost in the Condensed Consolidated Statements of Operations. As of October 1, 2023, the Company has not paid any of the restructuring costs and $2.1 million of the restructuring liability was included in Accrued compensation on the Condensed Consolidated Balance Sheet.

In addition, the Company also expects to recognize an accelerated depreciation expenses of approximately $36 million for Gen1 equipment between the fourth quarter of 2023 and the first quarter of 2024.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis provide information that the management of Enovix Corporation (referred as to “we,” “us,” “our” and “Enovix”) believes is relevant to an assessment and understanding of Enovix’s condensed consolidated results of operations and financial condition as of October 1, 2023 and for the quarter and fiscal year-to-date ended October 1, 2023 and should be read together with the condensed consolidated financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contain forward-looking statements based upon our current expectations, estimates and projections that involve risks and uncertainties. Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

Business Overview

Enovix Corporation is on a mission to power the technologies of the future. We do this by designing, developing, manufacturing and commercializing next generation Lithium-ion, or Li-ion, battery cells that significantly increase the amount of energy density and storage capacity relative to conventional battery cells. Our battery’s mechanical design, or “architecture,” allows us to use high performance chemistries while enabling safety and charge time advantages.

The benefit of an enhanced battery for portable electronics is devices that have more power budget available to keep up with user preferences for more advanced features and more attractive form factors. The benefit of an advanced battery for Electric Vehicles (“EVs”) is a faster charging battery.

Key Trends, Opportunities and Uncertainties

We generate revenue from the sale of (a) silicon-anode lithium-ion batteries and battery pack products (“Product Revenue”) and (b) engineering revenue contracts (“Service Revenue”) for the development of silicon-anode lithium-ion battery technology. Our performance and future success depend on several factors that present significant opportunities, but also pose risks and challenges as described in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q.

Q3 2023 Highlights:

Following is a summary of the activities in the third quarter of 2023:

•In August 2023, we commenced Factory Acceptance Testing (“FAT”) of second generation (“Gen2”) manufacturing equipment on schedule and we recently completed FAT for one of the four zones of the production line.

•In September 2023, we entered a stock purchase agreement (the “Stock Purchase Agreement”) to acquire Routejade (the “Routejade Acquisition”). The total estimated purchase consideration of the Routejade Acquisition consists of cash consideration in the amount of approximately $15.8 million and 5,923,521 shares of our common stock, par value $0.0001 per share (“Common Stock”), for the purchase of substantially all of the outstanding shares of Routejade. The closing of the transaction contemplated by the Stock Purchase Agreement (the “Closing”) occurred on October 31, 2023. This acquisition helps us vertically integrate electrode coating to reduce our costs, enhance manufacturability, and speed up our technology development and provides approximately $3 to $4 million of revenue for the fourth quarter of 2023. See Note 14 “Acquisition” of the notes to our condensed consolidated financial statements in Part I of this Quarterly Report on Form 10-Q for further information.

•Our battery has been selected for the FDA-approved accurate Meditech “Mini,” a multi-vital sign monitor to be sold at CVS, Walgreens, and Walmart in 2024.

•During the third quarter of 2023, we recognized $0.2 million of revenue, which was primarily from the shipment of our custom size Enovix batteries to the U.S. Army.

•On October 3, 2023, we announced that we initiated a strategic realignment of our first production line (“Fab1”) in Fremont, which is designed to refocus the facility from a manufacturing hub to its “Center for Innovation,” focused on new product development, including a plan of workforce reduction. Currently, we expect this restructuring plan to be substantially completed in the fourth quarter of 2023. This strategic realignment allowed us to stop 24/7 manufacturing, reduce our burn rate by approximately $22 million annualized and free up space for enhanced research and development and prototyping for automotive original equipment manufacturers (“OEMs”).

In connection with such strategic realignment, we recorded approximately $3.0 million of restructuring costs for the quarter and fiscal year-to-date ended October 1, 2023, which consisted of severance, termination benefits, stock-based compensation expense and inventory costs. These restructuring costs were reflected in Restructuring

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cost in our Condensed Statements of Operations. In addition, we also expect to recognize an accelerated depreciation expense of approximately $36.0 million for Gen1 equipment between the fourth quarter of 2023 and the first quarter of 2024. See Note 15 “Restructuring Costs” of the notes to our condensed consolidated financial statements in Part I of this Quarterly Report on Form 10-Q for further information.

Overall, we are on track to begin installing our new higher speed pilot line (“Agility Line”) for customer qualification and produce first samples from our first high-volume Gen2 Autoline in April 2024.

Product Development

Our product strategy is to develop battery “nodes” that share the same set of active materials and mechanical design and then build batteries at different sizes to accommodate customer requirements based on these nodes. Our product roadmap consists of future nodes at higher levels of energy density based on both materials and design innovation. Our goal is to drive energy density improvements at a faster rate than the Li-ion battery industry’s track record and introduce higher performing battery nodes over time.

We have historically built and sampled standard size batteries that have broad application within specific end markets such as wearables, mobile devices, laptops and AR eyewear. We have also launched custom battery designs with customers that require a unique set of dimensions to accommodate the battery cavity in their device.

In the second quarter of 2022, we began production in our first production line (“Fab1”) of a standard battery cell sized for wearable devices such as a smartwatch and other Internet-of-Things (“IoT”) devices. In the first quarter of 2024, we plan to begin installing the Agility Line to produce custom size batteries more quickly for customer qualification and focus on custom cell development.

Commercialization

During the third quarter of 2023, we shifted from a horizontal business strategy focused on many customers to a vertical business strategy focused on a subset of customer relationships where our value proposition is highest. This shift includes a greater focus on custom battery designs aligned to key customer requirements such as energy density, cycle life, charge rate, and battery dimensions. These requirements can vary by customer and end market.

For example, in mobile, we are developing a battery with over 10% higher energy density than our current generation, with a targeted cycle life of 1,000 cycles, and a charge rate of 3C (i.e., full battery recharge in 20 minutes). By comparison, we have a customer that is willing to accept lower cycle life if it means even higher energy density. And in some IoT applications, customers are willing to trade off fast charge rates in exchange for higher energy density and cycling performance in extreme temperatures.

We are well-positioned to address our customer’s varying needs due to our material agnostic strategy, which allows us to fine tune battery performance parameters based the anodes and cathodes we combine. We are currently evaluating a dozen different anode cathode formulations, giving us multiple candidates to drive improvements in energy density, cycle life, and charge rate.

Market Focus and Market Expansion

Within the portable electronics market, we have simplified our market focus to three categories: IoT (wearables, AR/VR, medical, industrial, cameras, etc.), Mobile (smartphones, land mobile radios, enterprise devices, etc.), and Computing (laptops, tablets). We estimate the Total Addressable Market (“TAM”) for lithium-ion batteries in our targeted portable electronics markets to be $23 billion in 2026 based on company estimates as of January 2023 that incorporate end market unit estimates from IDTechEx, IDC, Avicenne Energy and Statista.

We believe focusing on these categories ahead of EVs is the right strategy for any advanced battery company because of the economic and time-to-market advantages. Entering the EV battery market requires billions of dollars of capital to build Gigafactories, offers lower prices per kWh than mobile electronics and demands long qualification cycles. We believe the best approach is to start in premium markets where we can leverage our differentiated technology and solidify our manufacturing process while driving toward profitability At the same time, we are seeding our entry into the EV battery market by sampling batteries to EV OEMs and continuing work on our three-year grant with the U.S. Department of Energy to demonstrate batteries featuring our silicon anode paired with EV-class cathode materials. Our goal is to translate this work into partnerships (e.g., joint ventures or licensing) with EV OEMs or battery OEMs in order to commercialize our technology in this end market.

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Access to Capital

Assuming we experience no significant delays in the research and development of our battery nor any deterioration in capital efficiency, we believe that our cash resources are sufficient to fund the continued build-out and production ramp as well as our Fab2 for growth. In April 2023, we completed our offerings of the Convertible Senior Notes. The net proceeds from the offerings were approximately $166.6 million. We used approximately $17.3 million of the net proceeds from the offerings to pay the cost of the capped call transactions entered on April 20, 2023 in connection with such offerings. In addition, we will use the remaining net proceeds to build out a second battery cell manufacturing facility and fund the acquisition of production lines of our second-generation manufacturing equipment, and for working capital and other general corporate purposes.

Regulatory Landscape

We operate in an industry that is subject to many established environmental regulations, which have generally become more stringent over time, particularly in hazardous waste generation and disposal and pollution control. Potential regulations, if adopted, could result in additional operating costs associated with compliance.

Components of Results of Operations

Revenue

In June 2022, we began to generate revenue from our planned principal business activities. We recognize revenue within the scope of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers. We generate revenue from our Product Revenue and Service Revenue for the development of silicon-anode lithium-ion battery technology.

Product Revenue is recognized once we have satisfied the performance obligations and the customer obtains control of the goods at a point in time under the revenue recognition criteria. Product Revenue is recognized in an amount that reflects the consideration for the corresponding performance obligations for the silicon-anode lithium-ion batteries or battery pack products transferred.

Service Revenue contracts generally include the design and development efforts to conform our existing battery technology with customers’ required specifications. Consideration for Service Revenue contracts generally becomes payable when we meet specific contractual milestones, which include the design and approval of custom cells, procurement of fabrication tooling to meet the customer’s specifications, and fabrication and delivery of custom cells from our pilot production line. Within the existing Service Revenue contracts, the amount of consideration is fixed, the contracts contain a single performance obligation, and revenue is recognized at the point in time the final milestone is met (i.e., a final working prototype meeting all required specifications) and the customer obtains control of the deliverable.

Cost of Revenue

Cost of revenue includes materials, labor, depreciation expense, and other direct costs related to Service Revenue contracts and production lines. Labor consists of personnel-related expenses such as salaries and benefits, and stock-based compensation. Since our production commenced in the second quarter of 2022, we anticipate that cost of revenue will continue to increase as we optimize our first production line and bring-up our second production line.

Our inventory is stated at the lower of cost or net realizable value (“NRV”). Cost includes materials, labor, and normal manufacturing overhead related to the purchase and production of inventories. We value our inventory periodically to the lower of cost or NRV and record the difference to cost of revenue.

Capitalization of certain costs are recognized as an asset if they relate directly to a customer contract, generate or enhance resources of the entity that will be used in satisfying future performance obligations, and are expected to be recovered. If these three criteria are not met, the costs are expensed in the period incurred. Deferred costs are recognized as cost of revenue in the period when the related revenue is recognized.

Operating Expenses

Research and Development Expenses

Research and development expenses consist of engineering services, allocated facilities costs, depreciation, development expenses, materials, labor and stock-based compensation related primarily to our (i) technology development, (ii) design, construction, and testing of preproduction prototypes and models, and (iii) certain costs related to the design,

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construction and operation of our pilot plant that are not of a scale economically feasible to us for commercial production. Research and development costs are expensed as incurred.

To date, research and development expenses have consisted primarily of personnel-related expenses for scientists, experienced engineers and technicians as well as costs associated with the expansion and ramp up of our engineering and manufacturing facility in Fremont, California, including the material and supplies to support the product development and process engineering efforts. As we ramp up our engineering operations to complete the development of batteries and required process engineering to meet customer specifications, we anticipate that research and development expenses will continue to increase for the foreseeable future as we expand hiring of scientists, engineers and technicians and continue to invest in additional plant and equipment for product development, building prototypes and testing of batteries. We established a research and development center in India that initially focuses on developing machine learning algorithms. In the second quarter of 2023, we also established an operations team in Malaysia and we target for Gen2 Autoline production in 2024.

Selling, General and Administrative Expenses

Selling, general and administrative expenses consist of personnel-related expenses, marketing expenses, allocated facilities expenses, depreciation expenses, travel expenses, acquisition costs, and professional services expenses, including legal, human resources, audit, accounting and tax-related services. Personnel related costs consist of salaries, benefits and stock-based compensation. Facilities costs consist of rent and maintenance of facilities.

We are expanding our personnel headcount to support the ramping up of commercial manufacturing and being a public company. Accordingly, we expect our selling, general and administrative expenses to increase significantly in the near term and for the foreseeable future.

Other Income (Expense)

Other income and expense primarily consists of dividends, interest income, interest expense, foreign currency transaction gain or loss and fair value adjustments for outstanding common stock warrants.

Income Tax Expense (Benefit)

Our income tax provision consists of an estimate for U.S. federal and state income taxes based on enacted rates, as adjusted for allowable credits, deductions, uncertain tax positions, changes in deferred tax assets and liabilities and changes in the tax law. We maintain a valuation allowance against the full value of our U.S. and state net deferred tax assets because we believe the recoverability of the tax assets is not more likely than not.

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Results of Operations

Comparison of Quarter Ended October 1, 2023 to Prior Year's Quarter Ended October 2, 2022

The following table sets forth our condensed consolidated operating results for the periods presented below (in thousands):


	Quarters Ended
	October 1, 2023		October 2, 2022		Change ($)		% Change



Revenue	$	200	$	8	$	192	N/M



Cost of revenue	16,809		6,629		10,180		154	%
Gross margin	(16,609)		(6,621)		(9,988)		151	%
Operating expenses:
Research and development	13,508		13,948		(440)		(3)	%
Selling, general and administrative	17,245		13,110		4,135		32	%

Restructuring cost	3,021		—		3,021		N/M
Total operating expenses	33,774		27,058		6,716		25	%
Loss from operations	(50,383)		(33,679)		(16,704)		50	%
Other income (expense):
Change in fair value of common stock warrants	31,320		(50,160)		81,480		(162)	%


Interest income	4,326		1,746		2,580		148	%
Interest expense	(1,557)		—		(1,557)		N/M
Other expense, net	109		80		29		36	%
Total other income (expense), net	34,198		(48,334)		82,532		(171)	%
Net loss	$	(16,185)	$	(82,013)	$	65,828	N/M

N/M – Not meaningful

Revenue

Revenue for the quarter ended October 1, 2023 was $0.2 million, which resulted from our product shipments to the U.S. Army. Revenue for the quarter ended October 2, 2022 was immaterial.

As of both October 1, 2023 and January 1, 2023, we had $3.8 million of deferred revenue on our Condensed Consolidated Balance Sheets.

Cost of Revenue

Cost of revenue for the quarter ended October 1, 2023 was $16.8 million, compared to $6.6 million during the quarter ended October 2, 2022. The increase in cost of revenue of $10.2 million was attributable to $8.3 million of labor costs, $0.8 million of depreciation expense and the remaining increase was related to facility and other miscellaneous direct costs.

As of both October 1, 2023 and January 1, 2023, we had $0.8 million of deferred contract costs on our Condensed Consolidated Balance Sheets.

Research and Development Expenses

Research and development (“R&D”) expenses for the quarter ended October 1, 2023 were $13.5 million, compared to $13.9 million during the quarter ended October 2, 2022. The decrease of $0.4 million, or 3%, was primarily attributable to a $5.8 million decrease in R&D expenses as we ramp up our production as some of the overhead costs were period costs and recorded as cost of revenue in the third quarter of 2023 instead of R&D expenses in the corresponding period in 2022. This decrease was offset by a $2.2 million increase in R&D expenses being capitalized as fixed assets, a one-time severance, benefits and stock-based compensation expense of $1.7 million, a $0.7 million increase in salaries and employee benefits and other expenses including travel and depreciation expenses.

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Selling, General and Administrative Expenses

Selling, general and administrative expenses for the quarter ended October 1, 2023 were $17.2 million, compared to $13.1 million during the quarter ended October 2, 2022. The increase of $4.1 million, or 32%, was primarily attributable to a one-time severance, benefits and stock-based compensation expense of $2.1 million in connection with the resignation of our former Chief Financial Officer (“CFO”) and acquisition costs of $1.1 million, including professional service fees, in connection with the Routejade Acquisition. The remaining increase was primarily related to the setup of Malaysia operations.

We anticipate that our overhead expenses will continue to increase in the next 12 months as we continue to hire additional personnel to support and maintain our new manufacturing facilities, as well as for our operation expansion.

Restructuring Cost

On October 3, 2023, we initiated a strategic realignment of our Fab1 in Fremont, including a restructuring plan with workforce reduction. We recorded $3.0 million of restructuring costs during the quarter ended October 1, 2023, which consisted of $2.4 million of severance and termination benefits and stock-based compensation expense and $0.6 million of inventory costs.

Change in Fair Value of Common Stock Warrants

The change in fair value of common stock warrants of $31.3 million for the quarter ended October 1, 2023 was attributable to a decrease, during the quarter, in the fair value of the 6,000,000 common stock warrants that are held by Rodgers Capital, LLC (the “Sponsor”) and certain of its members (the “Private Placement Warrants”). The decrease in fair value of Private Placement Warrants was primarily due to a decrease in our common stock price during the quarter.

The change in fair value of common stock warrants of $(50.2) million for the quarter ended October 2, 2022 was attributable to an increase, during the quarter, in the fair value of the Private Placement Warrants.

Interest Income