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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 July 2, 2023
OR
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.)
Delaware001-3975385-3174357
(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 shareENVX
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 filerxAccelerated filero
Non-accelerated fileroSmaller reporting companyo
Emerging growth companyo
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 August 7, 2023, 160,126,939 shares of common stock, par value $0.0001 per share, were issued and outstanding.



Table of Contents

Table of Contents
Page
Condensed Consolidated Balance Sheets as of July 2, 2023 and January 1, 2023



Table of Contents

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;
ability to convert our revenue funnel to purchase orders and revenue;
placement of equipment orders for our next-generation manufacturing lines, the speed of and space requirements for our next-generation manufacturing lines relative to our existing lines at Fab1 in Fremont;
factory sites and related considerations, including site selection, location and timing of build-out, and benefits thereof; and
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.
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.






Table of Contents

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
ENOVIX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except share and par value amounts)
(Unaudited)
July 2, 2023January 1, 2023
Assets
Current assets:
Cash and cash equivalents $343,152 $322,851 
Short-term investments66,092  
Accounts receivable, net42 170 
Inventory796 634 
Deferred contract costs 800 800 
Prepaid expenses and other current assets 2,932 5,193 
Total current assets 413,814 329,648 
Property and equipment, net 118,257 103,868 
Operating lease, right-of-use assets 6,059 6,133 
Other assets, non-current 825 937 
Total assets $538,955 $440,586 
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable $13,341 $7,077 
Accrued expenses 12,634 7,089 
Accrued compensation 10,116 8,097 
Deferred revenue 350 50 
Other liabilities 942 716 
Total current liabilities 37,383 23,029 
Long-term debt, net166,805  
Warrant liability76,260 49,080 
Operating lease liabilities, non-current 7,775 8,234 
Deferred revenue, non-current 3,424 3,724 
Other liabilities, non-current 24 92 
Total liabilities 291,671 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 158,911,419 and 157,461,802 as of July 2, 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 July 2, 2023 and January 1, 2023, respectively
  
Additional paid-in-capital 769,975 741,186 
Accumulated other comprehensive loss(24) 
Accumulated deficit (522,683)(384,774)
Total stockholders’ equity 247,284 356,427 
Total liabilities and stockholders’ equity $538,955 $440,586 
See accompanying notes to these condensed consolidated financial statements.
1


Table of Contents

ENOVIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Quarters EndedFiscal Years-to-Date Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
Revenue $42 $5,101 $63 $5,101 
Cost of revenue14,235 5,739 26,483 6,254 
Gross margin(14,193)(638)(26,420)(1,153)
Operating expenses:
Research and development 16,553 15,827 40,302 28,558 
Selling, general and administrative 16,688 11,566 43,962 23,435 
Impairment of equipment4,411  4,411  
Total operating expenses 37,652 27,393 88,675 51,993 
Loss from operations (51,845)(28,031)(115,095)(53,146)
Other income (expense):
Change in fair value of common stock warrants(14,340)26,400 (27,180)94,200 
Interest income3,150 629 5,616 653 
Interest expense(1,270) (1,270) 
Other income (expense), net (1)(133)20 (135)
Total other income (expense), net (12,461)26,896 (22,814)94,718 
Net income (loss)$(64,306)$(1,135)$(137,909)$41,572 
Net income (loss) per share, basic$(0.41)$(0.01)$(0.88)$0.27 
Weighted average number of common shares outstanding, basic157,151,386 152,521,389 156,397,145 152,082,655 
Net loss per share, diluted$(0.41)$(0.18)$(0.88)$(0.34)
Weighted average number of common shares outstanding, diluted157,151,386 152,521,389 156,397,145 152,924,803 
See accompanying notes to these condensed consolidated financial statements.
2


Table of Contents

ENOVIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands, except share and per share amounts)
(Unaudited)
Quarters EndedFiscal Years-to-Date Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
Net income (loss)$(64,306)$(1,135)$(137,909)$41,572 
Other comprehensive income (loss), net of tax
Net unrealized loss on available-for-sale securities(24) (24) 
Other comprehensive loss, net of tax(24) (24) 
Total comprehensive income (loss)$(64,330)$(1,135)$(137,933)$41,572 
See accompanying notes to these condensed consolidated financial statements.
3


Table of Contents

ENOVIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(Unaudited)
Common Stock Additional Paid-in CapitalAccumulated Other Comprehensive LossAccumulated DeficitTotal Stockholders' Equity
Shares Amount
Balance as of January 1, 2023157,461,802 $15 $741,186 $ $(384,774)$356,427 
Issuance of common stock upon exercise of stock options86,654 — 328 — — 328 
Early exercised stock options vested— 1 82 — — 83 
RSUs vested, net of shares withheld for taxes679,606 — (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, 2023158,089,463 16 770,472  (458,377)312,111 
Issuance of common stock upon exercise of stock options93,921 — 643 — — 643 
Issuance of common stock under employee stock purchase plan146,278 — 1,170 — — 1,170 
Early exercised stock options vested— — 14 — — 14 
RSUs vested, net of shares withheld for taxes650,202 — (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, 2023158,911,419 $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
Deficit
Total
Stockholders' Equity
Shares Amount
Balance as of January 2, 2022152,272,287 $15 $659,254 $(333,152)$326,117 
Issuance of common stock upon exercise of stock options91,910 — 200 — 200 
Issuance of common stock upon exercise of common stock warrants4,126,466 — 47,452 — 47,452 
Early exercised stock option vested— — 42 — 42 
RSUs vested34,941 — — — — 
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, 2022156,419,718 15 711,484 (290,445)421,054 
Issuance of common stock upon exercise of stock options46,807 — 77 — 77 
Issuance of common stock under employee stock purchase plan126,574 — 1,113 — 1,113 
Early exercised stock option vested— — 28 — 28 
RSUs vested115,990 — — — — 
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, 2022156,678,690 $15 $720,305 $(291,580)$428,740 
See accompanying notes to these condensed consolidated financial statements.
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ENOVIX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Fiscal Years-to-Date Ended
July 2, 2023July 3, 2022
Cash flows from operating activities:
Net income (loss)$(137,909)$41,572 
Adjustments to reconcile net income (loss) to net cash used in operating activities
Depreciation6,978 1,531 
Amortization of right-of-use assets289 269 
Accretion of discount on investments(389) 
Amortization of debt issuance costs222  
Stock-based compensation44,199 13,418 
Changes in fair value of common stock warrants27,180 (94,200)
Impairment of equipment4,411  
Changes in operating assets and liabilities:
Accounts receivable128 (102)
Inventory(163)(669)
Prepaid expenses and other assets3,145 613 
Deferred contract costs 3,214 
Accounts payable892 249 
Accrued expenses and compensation1,849 (1,191)
Deferred revenue (5,000)
Other liabilities5 (3)
Net cash used in operating activities(49,163)(40,299)
Cash flows from investing activities:
Purchase of property and equipment(15,724)(14,473)
Purchases of investments(65,736) 
Net cash used in investing activities(81,460)(14,473)
Cash flows from financing activities:
Proceeds from exercise of common stock warrants, net 52,828 
Proceeds from issuance of Convertible Senior Notes172,500  
Payments of debt issuance costs(5,228) 
Purchase of Capped Calls(17,250) 
Payroll tax payments for shares withheld upon vesting of RSUs(1,226) 
Proceeds from the exercise of stock options972 277 
Proceeds from issuance of common stock under employee stock purchase plan1,169 1,112 
Repurchase of unvested restricted common stock(13)(8)
Net cash provided by financing activities150,924 54,209 
Change in cash, cash equivalents, and restricted cash20,301 (563)
Cash and cash equivalents and restricted cash, beginning of period322,976 385,418 
Cash and cash equivalents, and restricted cash, end of period$343,277 $384,855 

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
July 2, 2023July 3, 2022
Supplemental cash flow data (Non-cash):
Purchase of property and equipment included in liabilities$15,770 $6,303 
Accrued debt issuance costs689  
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
July 2, 2023July 3, 2022
Cash and cash equivalents$343,152 $384,730 
Restricted cash included in prepaid expenses and other current assets125 125 
Total cash, cash equivalents, and restricted cash$343,277 $384,855 
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 July 2, 2023 and expects to incur operating losses for the foreseeable future. As of July 2, 2023, the Company had a working capital of $376.4 million and an accumulated deficit of $522.7 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 remaining net proceeds will be used 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, 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 July 2, 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 July 2, 2023 and July 3, 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 July 2, 2023 are not necessarily indicative of the operating results for the full year, and therefore should not be
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ENOVIX CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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. In the preparation of our condensed consolidated financial statements, the Company has considered potential impacts of the COVID-19 pandemic on its critical and significant accounting estimates. There was no significant impact to its condensed consolidated financial statements. The Company will continue to evaluate the nature and extent of the potential impacts to its business and its condensed consolidated financial statements.
Summary of Significant Accounting Policies
In May 2023, the Company invested in marketable securities, resulting in the following update 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.
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 Accounting Standards Codification (“ASC”) 820, Fair Value Measurements, issued by the Financial Accounting Standards Board. 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:
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ENOVIX CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 July 2, 2023 and January 1, 2023 (in thousands).
Fair Value Measurement using
Level 1Level 2Level 3Total
Fair Value
As of July 2, 2023
Assets:
Cash equivalents:
Money Market Funds$127,303 $ $ $127,303 
U.S. Treasuries 33,222  33,222 
Short-term investments:
U.S. Treasuries 66,092  66,092 
Liabilities:
Private Placement Warrants$ $ $76,260 $76,260 
As of January 1, 2023
Assets:
Cash equivalents:
Money Market Funds$319,946 $ $ $319,946 
Liabilities:  
Private Placement Warrants$ $ $49,080 $49,080 
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ENOVIX CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Cash Equivalents and Short-term Investments:
The following is a summary of cash equivalents and short-term investments (in thousands).
Reported as
Amortized CostUnrealized GainUnrealized LossEstimated Fair ValueCash EquivalentsShort-term Investments
As of July 2, 2023
Money Market Funds$127,303 $ $ $127,303 $127,303 $ 
U.S. Treasuries99,338 9 (33)99,314 33,222 66,092 
Total$226,641 $9 $(33)$226,617 $160,525 $66,092 
As of January 1, 2023
Money Market Funds$319,946 $— $— $319,946 $319,946 $ 
Private Placement Warrants
The Company’s liabilities are measured at fair value on a non-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 July 2, 2023, the fair value of the Private Placement Warrants was $12.71 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).
Private Placement Warrants
Fair value as of January 1, 2023
$49,080 
Change in fair value27,180 
Fair value as of July 2, 2023
$76,260 
Private Placement Warrants
Fair value as of January 2, 2022
$124,260 
Change in fair value(94,200)
Fair value as of July 3, 2022
$30,060 
The following table summarizes the key assumptions used for determining the fair value of the Private Placement warrants.
Private Placement Warrants Outstanding as of July 2, 2023Private Placement Warrants Outstanding as of January 1, 2023
Expected term (in years)3.03.5
Expected volatility95.0%92.5%
Risk-free interest rate4.5%4.2%
Expected dividend rate0.0%0.0%
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ENOVIX CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 July 2, 2023, the fair value of the Convertible Senior Notes was $214.1 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 July 2, 2023 and January 1, 2023, consisted of the following (in thousands).
July 2, 2023January 1, 2023
Machinery and equipment$60,558 $55,694 
Office equipment and software1,785 1,586 
Furniture and fixtures829 771 
Leasehold improvements25,322 24,565 
Construction in process47,235 33,268 
Total property and equipment135,729 115,884 
Less: accumulated depreciation(17,472)(12,016)
Property and equipment, net$118,257 $103,868 
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 EndedFiscal Years-to-Date Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
Depreciation expense$3,523 $1,217 $6,978 $1,531 
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 for the quarter and fiscal year-to-date ended July 2, 2023. As of July 2, 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 on a first-in and first-out basis. Inventory consists of the following components (in thousands).
July 2, 2023January 1, 2023
Raw materials$676 $481 
Work-in-process51 106 
Finished goods69 47 
Total inventory$796 $634 
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ENOVIX CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 6. Leases
The Company leases its headquarters, engineering and manufacturing space in Fremont, California under a single non-cancelable operating lease, right of use asset 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-cancelable operating lease that expires in April 2026 with an option to extend for five years.
The components of lease costs were as follows (in thousands):
Quarters Ended Fiscal Years-to-Date Ended
July 2, 2023July 3, 2022 July 2, 2023July 3, 2022
Operating lease cost$539 $419 $950 $839 
Supplemental lease information:
As of
Operating leasesJuly 2, 2023January 1, 2023
Weighted-average remaining lease term7.2 years7.7 years
Weighted-average discount rate6.8%6.8%
Supplemental cash flow information related to leases are as follows (in thousands):
Fiscal Years-to-Date Ended
July 2, 2023July 3, 2022
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases$699 $679 
Maturities of Lease Liabilities
The following is a schedule of maturities of lease liabilities as of July 2, 2023 (in thousands).
Operating lease
2023 (remaining six months)$706 
20241,449 
20251,492 
20261,491 
20271,513 
Thereafter4,262 
Total10,913 
Less: imputed interest(2,252)
Present value of lease liabilities$8,661 
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ENOVIX CORPORATION
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 RateMaturity DateAs of July 2, 2023
Convertible Senior Notes3.0 %May 1, 2028$172,500 
Less: unamortized debt issuance costs(5,695)
Long-term debt, net$166,805 
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 remaining net proceeds will be used to build out Fab 2 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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ENOVIX CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 quarter and fiscal year-to-date ended July 2, 2023, the Company incurred approximately $5.9 million of debt issuance costs relating to the issuance of the Convertible Senior Notes.
For the quarter and fiscal year-to-date ended July 2, 2023, the Company recorded $1.3 million of interest expense, including $0.2 million of amortization of debt issuance costs, related to the Convertible Senior Notes within Interest expense in the Condensed Consolidated Statements of Operations.
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”). 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 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 July 2, 2023 and January 1, 2023, the Company’s commitments included approximately $68.0 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
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ENOVIX CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 July 2, 2023, the Company had $3.8 million of performance obligations, which comprised of total deferred revenue and customer order deposits. The Company currently expects to recognize approximately 9% of deferred revenue as 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 July 2, 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.
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. Following court appointment of two purported Company stockholder lead plaintiffs, a consolidated complaint alleging substantially similar claims 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. A substantially identical complaint
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ENOVIX CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
was filed on January 25, 2023 by another purported Company stockholder. 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 July 2, 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 $11.50 per share on December 5, 2021. As of July 2, 2023 and January 1, 2023, the Company had 6,000,000 Private Placement Warrants outstanding. See Note 3 “Fair Value Measurement” for more information.
Note 10. Net Income (Loss) per Share
The following table sets forth the computation of the Company’s basic and diluted net EPS of common stock for the periods presented below (in thousands, except share and per share amount).
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ENOVIX CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Quarters EndedFiscal Years-to-Date Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
Numerator:
Net income (loss) attributable to common stockholders - basic$(64,306)$(1,135)$(137,909)$41,572 
Decrease in fair value of Private Placement Warrants (26,400) (94,200)
Net loss attributable to common stockholders - diluted$(64,306)$(27,535)$(137,909)$(52,628)
Denominator:
Weighted-average shares outstanding used in computing net loss per share of common stock, basic157,151,386 152,521,389 156,397,145 152,082,655 
Dilutive effect of Private Placement Warrants   842,148 
Weighted-average shares outstanding used in computing net loss per share of common stock, diluted157,151,386 152,521,389 156,397,145 152,924,803 
Net income (loss) per share of common stock:
Basic$(0.41)$(0.01)$(0.88)$0.27 
Diluted$(0.41)$(0.18)$(0.88)$(0.34)
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 EndedFiscal Years-to-Date Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
Stock options outstanding4,425,014 5,359,658 4,425,014 5,359,658 
Restricted stock units and performance restricted stock units outstanding13,898,172 5,902,643 13,898,172 5,902,643 
Assumed conversion of Convertible Senior Notes8,988,804  4,494,402  
Private Placement Warrants outstanding6,000,000 6,000,000 6,000,000 6,000,000 
Employee stock purchase plan estimated shares562,399 380,847 562,399 380,847 
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 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
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ENOVIX CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
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 EndedFiscal Years-to-Date Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
Cost of revenue$1,654 $250 $2,605 $250 
Research and development5,456 3,821 17,123 6,333 
Selling, general and administrative7,932 4,109 24,471 6,835 
Total stock-based compensation expense$15,042 $8,180 $44,199 $13,418 
For the fiscal years-to-date ended July 2, 2023 and July 3, 2022, the Company capitalized $0.7 million and $0.6 million, respectively, of stock-based compensation as property and equipment, net in 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 July 2, 2023.
As of July 2, 2023, there was approximately $158.8 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 July 2, 2023, there was approximately $0.9 million of total unrecognized stock-based compensation related to the ESPP, which is expected to be recognized over a period of 1.5 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 July 2, 2023, there was no equity award modification. For the fiscal year-to-date ended July 2, 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 July 2, 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, 20235,034,282$9.07 
Exercised(180,575)5.38 $1,570 
Forfeited(428,693)9.69 
Balances as of July 2, 20234,425,014$9.17 7.7$39,584 
(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 July 2, 2023 represents the value of the Company’s closing stock price at $18.04 on July 2, 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 July 2, 2023, 1,169,899 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 July 2, 2023 was immaterial and was recorded in other current and non-current liabilities in the Condensed Consolidated Balance Sheets.
Restricted Stock Unit and Performance Restricted Stock Unit Activities
The following table summarizes RSUs and PRSUs activities for the fiscal year-to-date ended July 2, 2023 (in thousands, except share and per share amount).
RSUsPRSUs
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, 20235,910,097 $14.11 1,461,061 $13.41 
Granted8,950,531 10.65 769,006 13.13 
Vested(1,289,924)13.08 (166,716)13.41 
Forfeited(548,343)13.32 (1,187,540)13.41 
Issued and unvested shares outstanding as of July 2, 202313,022,361 $11.86 875,811 $13.17 
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ENOVIX CORPORATION
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
Note 12. Related Party
Employment Relationship
The Company employs 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 July 2, 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. Subsequent Events
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 have 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. The Company will contribute 30% and YBS has the obligation to finance the remainder 70%. YBS will obtain $70.0 million in financing for manufacturing operations under the Agreement from OCBC Bank (Malaysia) Berhad (“OCBC”). The Company is in discussions with OCBC to provide collateral for YBS’ financing arrangement. Pricing under the Agreement is set on a cost-plus basis and is subject to a minimum commitment on behalf of Enovix. 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 YBS financed amount set out in the Agreement net of depreciation and the Company shall also bear the early repayment penalty fee imposed by the financier, if any. The term of the Agreement is for ten years and automatically extends for an additional five years.
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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 July 2, 2023 and for the quarter and fiscal year-to-date ended July 2, 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.
Q2 2023 Highlights:
During the second quarter of 2023, we produced 22,502 wearable-size cells, which exceeded our plan of 18,000 units by 25%, due to continued operational improvements in our first production line (“Fab1”). Additionally, we shipped over 10,000 cells to customers this quarter and recognized $42 thousand of revenue for the quarter. Furthermore, we received a purchase order to produce BrakeFlowTM enabled cells for the U.S. Army, which is a critical step on our path toward volume production.
In April 2023, we issued $172.5 million aggregate principal amount of convertible senior notes (the “Convertible Senior Notes”) to fund second generation (“Gen2”) production line (“Gen2 Autoline”) in our second manufacturing facility (“Fab2”) located in Malaysia.
On July 26, 2023, we 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. We and YBS have 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. We will contribute 30% and YBS has the obligation to finance the remainder 70%. YBS will obtain $70.0 million in financing for manufacturing operations under the Agreement from OCBC Bank (Malaysia) Berhad (“OCBC”). We are in discussions with OCBC to provide collateral for YBS’ financing arrangement. Pricing under the Agreement is set on a cost-plus basis and is subject to a minimum commitment on behalf of Enovix. At any time during the first seven years of the Agreement’s term, we reserve the right to purchase the Gen2 Line 1 by repaying the YBS financed amount set out in the Agreement net of depreciation and we shall also bear the early repayment penalty fee imposed by the financier, if any. The term of the Agreement is for ten years and automatically extends for an additional five years.
Our revenue funnel was $1.59 billion at the end of second quarter of 2023, which was comprised of $848.0 million of Engaged Opportunities and $737.0 million of Active Designs and Design Wins (each as defined below). Overall, the revenue funnel increased by 12% to $1.59 billion from $1.42 billion at the end of fiscal 2022. Our revenue funnel is defined as the potential value of a full production year for all of the customer projects for which we have been engaged. The components of the revenue funnel are:
Engaged Opportunities: Consists of engaged customers that have determined that our battery is applicable to their product and are evaluating our technology.
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Active Designs: Consists of customers that have completed evaluation of our technology, identified the end-product and started design work.
Design Win: Consists of customers that have funded a custom battery design or are qualifying one of our standard batteries for a formally approved product that will use an Enovix cell.
The speed with which we convert our revenue funnel to purchase orders and revenue will ultimately be governed by how fast we qualify customers, improve our manufacturing processes and bring on additional capacity.
Overall, we are on track to install our new higher speed pilot line (“Agility Line”) for customer qualification by year-end 2023 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 Fab1 of a standard battery cell sized for wearable devices such as a smartwatch and other Internet-of-Things ("IoT") devices. By the end of 2023, we plan to install the Agility Line to produce custom size batteries more quickly for customer qualification and focus on custom cell development.
Commercialization
We commenced deliveries of commercial cells from Fab1, which features a first-of-its-kind line for battery production. We regularly face and overcome new challenges to improve yield and output. Simultaneously, the efforts have provided and continue to provide valuable learning experiences, allowing us to improve our processes and equipment for future lines. With production commenced, our focus for Fab1 is on increasing volumes and yields.
Our go-to-market strategy this year and through most of 2024 will be to launch standard-size small and large cells into the IoT market. This market includes many applications that need higher battery capacity such as smartwatches, medical monitoring devices, connected industrial devices, and mixed reality headsets. In the first quarter of 2023, we began shipping full-qual samples of our large cell. During this quarter, we also shipped samples of our large cell for IoT, Mobile and Laptop applications. This included shipping sample cells to customers incorporating our revolutionary safety technology, BrakeFlowTM, which we are targeting for production on the Gen2 Autoline in Malaysia in 2024.
For the first half of this fiscal year, the company shipped simplified single-cell wearable battery packs to customers who want a fully tested complete battery solution for a faster time to market. Battery packs are a complete tested battery system solution that feature packaging and electronics to control charging and safe discharging.
We are building a global footprint with the goal of serving customers. During this quarter, we announced agreements with Japanese distribution and manufacturing services company, Elematec Corporation, and South Korean power management and IoT-focused distributor, Semicomtech. We intend that both will support market expansion with pan-Asian shipping and distribution.
Finally, to serve high-volume customers, who often demand custom packaging, we accelerated into this year the delivery of our highly flexible Gen2 Agility Line a lower throughput Gen2 line designed for quick battery size changeover.
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
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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.
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. The remaining net proceeds will be used 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.
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.
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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, 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, 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 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 July 2, 2023 to Prior Year's Quarter Ended July 3, 2022
The following table sets forth our condensed consolidated operating results for the periods presented below (in thousands):
Quarters Ended
July 2, 2023July 3, 2022
Change ($)
% Change
Revenue $42 $5,101 $(5,059)N/M
Cost of revenue14,235 5,739 8,496 148 %
Gross margin(14,193)(638)(13,555)N/M
Operating expenses:
Research and development 16,553 15,827 726 %
Selling, general and administrative 16,688 11,566 5,122 44 %
Impairment of equipment4,411 — 4,411 N/M
Total operating expenses 37,652 27,393 10,259 37 %
Loss from operations (51,845)(28,031)(23,814)85 %
Other income (expense):
Change in fair value of common stock warrants(14,340)26,400 (40,740)(154)%
Interest income3,150 629 2,521 N/M
Interest expense(1,270)— (1,270)N/M
Other expense, net(1)(133)132 N/M
Total other income (expense), net (12,461)26,896 (39,357)N/M
Net loss$(64,306)$(1,135)$(63,171)N/M
N/M – Not meaningful
Revenue
Revenue for the quarter ended July 2, 2023 was $42 thousand, which we recognized from our product shipments. Revenue for the quarter ended July 3, 2022 was $5.1 million, which was comprised of $5.1 million of Service Revenue and an immaterial amount of Product Revenue. Service Revenue was primarily attributed to the satisfaction of our final performance obligations for and our deliveries of (a) pilot cells and (b) battery packs to two customers under our Service Revenue customer contracts. Customer A represented $5.0 million of our total revenue for the quarter ended July 3, 2022.
As of both July 2, 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 July 2, 2023 was $14.2 million, compared to $5.7 million during the quarter ended July 3, 2022. The increase in cost of revenue of $8.5 million was attributable to $8.4 million of labor costs, $2.1 million of allocated depreciation expense and the remaining increase was related to direct materials, facility and other miscellaneous direct costs since we commenced our production in 2022. The increases were related to the ramp up of production from our Fab-1 during the quarter ended July 2, 2023. These increases were partially offset by a $3.5 million decrease in expenses incurred related to service revenue contracts that were completed in the second quarter of 2022.
As of both July 2, 2023 and January 1, 2023, we had $0.8 million of deferred contract costs on our Condensed Consolidated Balance Sheets.
In the beginning of June of 2022, we completed construction of our first production line and placed this equipment in service. As a result, we began depreciating this production equipment over its estimated useful life. We also began capitalizing inventory and recognizing factory overhead expenses in cost of revenue, which are largely fixed overhead costs (idle costs) that were previously recognized in research and development expenses. We expect equipment depreciation and idle costs to continue to increase. A full quarter of depreciation and idle costs was included in the second quarter of 2023 and approximately one month of depreciation and idle costs (since June 2022) was included in the
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corresponding period of 2022. In addition, we anticipate our factory overhead expenses will continue to increase in the next 12 months as we continue to hire additional personnel to support the build-out of additional production lines and maintain our new manufacturing facilities.
Research and Development Expenses
Research and development expenses for the quarter ended July 2, 2023 were $16.6 million, compared to $15.8 million during the quarter ended July 3, 2022. The increase of $0.7 million, or 5%, was primarily attributable to an increase in our research and development employee headcount resulting in a $4.0 million increase in salaries and employee benefits and a $1.6 million increase in stock-based compensation expenses, which were partially offset by decreases in research and development expenses as some of the overhead costs were period costs and recorded as cost of revenue in the second quarter of 2023 instead of research and development expense in the corresponding period in 2022.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter ended July 2, 2023 were $16.7 million, compared to $11.6 million during the quarter ended July 3, 2022. The increase of $5.1 million, or 44%, was primarily attributable to a one-time severance, benefits and stock-based compensation expense of $1.9 million in connection with the resignation of our former Chief Financial Officer (“CFO”). The remaining increase of $3.2 million was primarily due to an increase in our selling, general and administrative employee headcount resulting in a $0.9 million increase in salaries and employee benefits and a $2.3 million increase in stock-based compensation expenses.
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.
Impairment of equipment
During the quarter ended July 2, 2023, we recognized $4.4 million of impairment charge during the quarter while no impairment charge was recorded in the corresponding period last year. See Note 4 “Property and Equipment” for more information.
Change in Fair Value of Common Stock Warrants
The change in fair value of common stock warrants of $14.3 million for the quarter ended July 2, 2023 was attributable to an increase, 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 increase in fair value of Private Placement Warrants was primarily due to an increase in our common stock price during the quarter.
The change in fair value of common stock warrants of $26.4 million for the quarter ended July 3, 2022 was attributable to a decrease, during the quarter, in the fair value of the Private Placement Warrants.
Interest Income
Interest income for the quarter ended July 2, 2023 was $3.2 million, compared to $0.6 million during the quarter ended July 3, 2022. The increase of $2.5 million was primarily due to the fact that we received higher dividend income and interest income from our money market accounts and our investments during the quarter ended July 2, 2023 as compared to the corresponding period in 2022.
Interest Expense
Interest expense for the quarter ended July 2, 2023 was $1.3 million, which primarily incurred with the Convertible Senior Notes. No interest expense was incurred for the quarter ended July 3, 2022.
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Comparison of Fiscal Year-to-date Ended July 2, 2023 to Prior Fiscal Year-to-date Ended July 3, 2022
The following table sets forth our condensed consolidated operating results for the periods presented below (in thousands):
Fiscal Years-to-Date Ended
July 2, 2023July 3, 2022
Change ($)
% Change
Revenue $63 $5,101 $(5,038)N/M
Cost of revenue26,483 6,254 20,229 N/M
Gross margin(26,420)(1,153)(25,267)N/M
Operating expenses:
Research and development 40,302 28,558 11,744 41 %
Selling, general and administrative 43,962 23,435 20,527 88 %
Impairment of equipment4,411 — 4,411 N/M
Total operating expenses 88,675 51,993 36,682 71 %
Loss from operations (115,095)(53,146)(61,949)117 %
Other income (expense):
Change in fair value of common stock warrants(27,180)94,200 (121,380)(129)%
Interest income5,616 653 4,963 N/M
Interest expense(1,270)— (1,270)N/M
Other income (expense), net 20 (135)155 (115)%
Total other income (expense), net (22,814)94,718 (117,532)(124)%
Net income (loss)$(137,909)$41,572 $(179,481)N/M
N/M – Not meaningful
Revenue
Revenue for the fiscal year-to-date ended July 2, 2023 was $0.1 million, which we recognized from our product shipments. Revenue for the fiscal year-to-date ended July 3, 2022 was $5.1 million, which was comprised of $5.1 million of Service Revenue and an immaterial amount of Product Revenue. Service Revenue was primarily attributed to the satisfaction of our final performance obligations for and our deliveries of (a) pilot cells and (b) battery packs to two customers under our Service Revenue customer contracts. Customer A represented $5.0 million of our total revenue for the fiscal year-to-date ended July 2, 2022.
As of both July 2, 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 fiscal year-to-date ended July 2, 2023 was $26.5 million, compared to $6.3 million during the prior fiscal year-to-date ended July 3, 2022. The increase in cost of revenue of $20.2 million was attributable to $15.7 million of labor costs, $5.0 million of allocated depreciation expense, $3.0 million of facility and maintenance costs and increases in other miscellaneous expenses. The increases were related to the ramp up of production from our Fab-1 during the first half of the year. These increases were partially offset by a $4.0 million decrease in expenses incurred related to service revenue contracts that were completed in the corresponding period of 2022.
As of both July 2, 2023 and January 1, 2023, we had $0.8 million of deferred contract costs on our Condensed Consolidated Balance Sheets.
In the beginning of June of 2022, we completed construction of our first production line and placed this equipment in service. As a result, we began depreciating this production equipment over its estimated useful life. We also began capitalizing inventory and recognizing factory overhead expenses in cost of revenue, which are largely fixed overhead costs (idle costs) that were previously recognized in research and development expenses. We expect equipment depreciation and idle costs to continue to increase. Six months of depreciation and idle costs was included in the current year-to-date period costs and approximately one month of depreciation and idle costs (since June 2022) was included in the corresponding period of 2022. In addition, we anticipate our factory overhead expenses will continue to increase in the next
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12 months as we continue to hire additional personnel to support the build-out of additional production lines and maintain our new manufacturing facilities.
Research and Development Expenses
Research and development expenses for the fiscal year-to-date ended July 2, 2023 were $40.3 million, compared to $28.6 million during the prior fiscal year-to-date ended July 3, 2022. The increase of $11.7 million, or 41%, was primarily attributable to a one-time severance, benefits and stock-based compensation expense of $9.1 million in connection with the departures of our former Chief Technology Officer and a senior executive in the first quarter of 2023. The remaining increase of $2.6 million was an increase in our research and development employee headcount resulting in a $8.6 million increase in salaries and employee benefits, a $2.5 million increase in stock-based compensation expenses and a $1.3 million in depreciation and travel expenses, which were partially offset by decreases in research and development expenses as some of the overhead costs were period costs and recorded as cost of revenue in the current year instead of research and development expense in the corresponding period in for the fiscal year-to-date of 2022.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the fiscal year-to-date period ended July 2, 2023 were $44.0 million, compared to $23.4 million during the prior fiscal year-to-date ended July 3, 2022. The increase of $20.5 million, or 88%, was primarily attributable to a one-time severance, benefits and stock-based compensation expense of $15.7 million in connection with the departures of our former President, Chief Executive Officer and Director, former CFO and certain other executives in this year. The remaining increase of $4.8 million was primarily due to an increase in our selling, general and administrative employee headcount resulting in a $1.7 million increase in salaries and employee benefits and a $3.2 million increase in stock-based compensation expenses, which were partially offset by decreases in other miscellaneous expenses.
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.
Impairment of equipment
In the second quarter of 2023, we recognized $4.4 million of impairment charge for the fiscal year-to-date ended July 2, 2023 while no impairment charge was recorded in the same period last year. See Note 4 “Property and Equipment” for more information.
Change in Fair Value of Common Stock Warrants
The change in fair value of common stock warrants of $27.2 million for the fiscal year-to-date ended July 2, 2023 was attributable to an increase, during the current year, in the fair value of the 6,000,000 Private Placement Warrants. The increase in fair value of Private Placement Warrants was primarily due to an increase in our common stock price during the year.
The change in fair value of common stock warrants of $94.2 million for the fiscal year-to-date ended July 3, 2022 was attributable to a decrease, during the last year, in the fair value of the Private Placement Warrants.
Interest Income
Interest income for the fiscal year-to-date ended July 2, 2023 was $5.6 million, compared to $0.7 million during the fiscal year-to-date ended July 3, 2022. The increase of $5.0 million was primarily due to the fact that we received higher dividend income and interest income from our money market accounts and our investments for the fiscal year-to-date ended July 2, 2023 as compared to the corresponding period in 2022.
Interest Expense
Interest expense for the fiscal year-to-date ended July 2, 2023 was $1.3 million, which primarily incurred with the Convertible Senior Notes. No interest expense was incurred for the corresponding period last year.
Non-GAAP Financial Measures
While we prepare our condensed consolidated financial statements in accordance with U.S. generally accepted accounting principles (“GAAP”), we also utilize and present certain financial measures that are not based on GAAP. We refer to these financial measures as “Non-GAAP” financial measures. In addition to our financial results determined in accordance with GAAP, we believe that EBITDA, and Adjusted EBITDA, and Free Cash Flow (each as defined below), are useful measures in evaluating our financial and operational performance distinct and apart from financing costs, certain non-cash expenses and non-operational expenses.
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These Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP but should not be considered a substitute for or superior to GAAP. We endeavor to compensate for the limitation of the Non-GAAP financial measures presented by also providing the most directly comparable GAAP measures.
We use Non-GAAP financial information to evaluate our ongoing operations and for internal planning, budgeting and forecasting purposes. We believe that Non-GAAP financial information, when taken collectively, may be helpful to investors in assessing our operating performance and comparing our performance with competitors and other comparable companies. You should review the reconciliations below but not rely on any single financial measure to evaluate our business.
EBITDA and Adjusted EBITDA
“EBITDA” is defined as earnings (net loss) adjusted for interest expense; income taxes; depreciation expense, and amortization expense. “Adjusted EBITDA” includes additional adjustments to EBITDA such as stock-based compensation expense; change in fair value of common stock warrants; impairment of equipment, loss on early debt extinguishment and other special items as determined by management which it does not believe to be indicative of its underlying business trends. EBITDA and Adjusted EBITDA are intended as supplemental financial measures of our performance that are neither required by, nor presented in accordance with GAAP. We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends, and in comparing our financial measures with those of comparable companies, which may present similar Non-GAAP financial measures to investors.
However, you should be aware that when evaluating EBITDA, and Adjusted EBITDA, we may incur future expenses similar to those excluded when calculating these measures. In addition, the presentation of these measures should not be construed as an inference that our future results will be unaffected by unusual or nonrecurring items. Our computation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate EBITDA and Adjusted EBITDA in the same fashion.
Below is a reconciliation of net loss on a GAAP basis to the Non-GAAP EBITDA and Adjusted EBITDA financial measures for the periods presented below (in thousands):
Quarters EndedFiscal Years-to-Date Ended
July 2, 2023July 3, 2022July 2, 2023July 3, 2022
Net income (loss)$(64,306)$(1,135)$(137,909)$41,572 
Interest expense1,270 — 1,270 — 
Depreciation and amortization3,502 1,352 7,100 1,800 
EBITDA(59,534)217 (129,539)43,372 
Stock-based compensation expense15,042 8,180 44,199 13,418 
Change in fair value of common stock warrants14,340 (26,400)27,180 (94,200)
Impairment of equipment4,411 — 4,411 — 
Adjusted EBITDA$(25,741)$(18,003)$(53,749)$(37,410)
Free Cash Flow
We define “Free Cash Flow” as (i) net cash from operating activities less (ii) capital expenditures, net of proceeds from disposals of property and equipment, all of which are derived from our Condensed Consolidated Statements of Cash Flows. The presentation of non-GAAP Free Cash Flow is not intended as an alternative measure of cash flows from operations, as determined in accordance with GAAP. We believe that this financial measure is useful to investors because it provides investors to view our performance using the same tool that we use to gauge our progress in achieving our goals and it is an indication of cash flow that may be available to fund investments in future growth initiatives. Below is a
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reconciliation of net cash used in operating activities to the Free Cash Flow financial measures for the periods presented below (in thousands):
Fiscal Years-to-Date Ended
July 2, 2023July 3, 2022
Net cash used in operating activities$(49,163)$(40,299)
Capital expenditures(15,724)(14,473)
Free Cash Flow$(64,887)$(54,772)
Liquidity and Capital Resources
We have incurred operating losses and negative cash flows from operations since inception through July 2, 2023 and expect to incur operating losses for the foreseeable future. As of July 2, 2023, we had cash, cash equivalents, restricted cash, and short-term investments of $409.4 million, working capital of $376.4 million and an accumulated deficit of $522.7 million.
On April 20, 2023, we issued $172.5 million aggregate principal amount of 3.0% 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 us 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 includes the exercise in full by the initial purchasers of their option to purchase an additional $22.5 million aggregate principal amount of Convertible Senior Notes and the issuance of $10.0 million principal amount of Convertible Senior Notes (the “Affiliate Notes”) 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 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 and the Affiliated Notes will mature on May 1, 2028 unless earlier converted, redeemed or repurchased.
The net proceeds from the Convertible Senior Notes 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 the offerings. The remaining net proceeds will be used 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. See Note 7 “Borrowings” of the notes to our condensed consolidated financial statements in Part I of this Quarterly Report on Form 10-Q for further information.
Following the issuance of Convertible Senior Notes, we invested in marketable securities. As of July 2, 2023, we had $66.1 million of short-term investments on the Condensed Consolidated Balance Sheet. We did not have short-term investments as of January 1, 2023.
Material Cash Requirements
As of July 2, 2023, we had cash, cash equivalents, restricted cash, and short-term investments of $409.4 million. We currently use cash to fund operations, meet working capital requirements and fund our capital expenditures. In fiscal year 2023 and over the next several years, we expect that our cost of revenue, research and development expenses and selling, general and administrative expenses will continue to increase.
For the fiscal year-to-date ended July 2, 2023, we used $15.7 million of our cash to fund our acquisitions of property and equipment. We will continue to increase our property and equipment purchases in the near future to support the build-out of our manufacturing facilities and our battery manufacturing production. See more discussion on contractual obligations and commitments section below.
As discussed above, we entered the Agreement with YBS and will contribute 30% as the initial investment of $100.0 million for the equipment for the Gen2 Line 1 and facilitation costs, as set out in the Agreement. Enovix is in discussions with OCBC to provide collateral for YBS’ financing arrangement.
Based on the anticipated spending, timing of expenditures and the estimated net proceeds from the Convertible Senior Notes, we currently expect that our cash will be sufficient to meet our funding requirements over the next twelve months from the date this Quarterly Report on Form 10-Q is filed. We believe we will meet longer-term expected future cash
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requirements and obligations through a combination of available cash, cash equivalents and future debt financings, and access to other public or private equity offerings as well as potential strategic arrangements. We have made our estimates on historical experience and various other relevant factors and we believe that they are reasonable. Actual results may differ from our estimates, and we could utilize our available capital resources sooner than we expect.
Summary of Cash Flows
The following table provides a summary of cash flow data for the periods presented below (in thousands).
Fiscal Years-to-Date Ended
July 2, 2023July 3, 2022Change ($)
Net cash used in operating activities$(49,163)$(40,299)$(8,864)
Net cash used in investing activities(81,460)(14,473)(66,987)
Net cash provided by financing activities150,924 54,209 96,715 
Change in cash, cash equivalents, and restricted cash$20,301 $(563)$20,864 
Fiscal Year-to-date Ended July 2, 2023 Compared to Prior Year-to-date Ended July 3, 2022
Operating Activities
Our cash flows used in operating activities to date have been primarily comprised of cost of revenue and operating expenses. We continue to increase hiring for employees in supporting the ramping up of commercial manufacturing and being a public company. We expect our cash used in operating activities to increase significantly before we start to generate any material cash inflows from commercially manufacturing and selling our batteries.
Net cash used in operating activities was $49.2 million for the fiscal year-to-date ended July 2, 2023. Net cash used in operating activities consists of net loss of $137.9 million, adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments primarily include the change in fair value of the Private Placement Warrants of $27.2 million, stock-bas