Ensurge Micropower ASA (ENSU) Earnings Call Transcript & Summary

Good morning. This is Kevin Barber, CEO of Ensurge, and I want to welcome you this morning to our first half 2021 interim report. And first, I'm also excited that this is the first time we're reporting with our new company name that we changed this past June to Ensurge Micropower. Ensurge, meaning the enabling, the ensuring and energizing of innovation for our customers as well as the momentum inherent with our strategy to bring premium solid-state microbatteries with unmatched performance to our target markets. So we think it's a very meaningful name and an exciting logo, and I'm very proud of the team and the new branding that we've released in these last few months. Just a reminder of our safe harbor statement of the statements we're going to make this morning. And so first, a reminder of our strategy, and so we're focused on delivering a superior replacement in a billion-unit market, delivering solid-state lithium batteries that replace lithium ion, which, in general, in the world today is a huge global investment theme to deliver the promise of solid-state lithium across many markets, but Ensurge is uniquely focused on delivering solid-state batteries into the microbattery markets, which we believe is a unique opportunity for us, our steel technology and our Roll-to-Roll manufacturing capability. And what does solid-state batteries do? They will be able to deliver twice the energy density of lithium-ion and longer life cycles, and they're fundamentally safer. And what we're bringing to that technology is our proprietary IP that we delivered into the market in the prior strategy and now, with batteries, building performance electronics on stainless steel with our Roll-to-Roll equipment and our process technology. We're going to combine that with stacking innovation that's been established in the semiconductor industry and leverage our existing manufacturing facility that's ISO certified. And the market is very much looking for solutions to their requirements, where form factor is able to be modified from standard round button cells, delivering higher energy density into small form factors and enabling longer life cycles where batteries can be replaced after multiple years and not less than 1 year. And so this remains our focus. And I'll talk about the progress we've been making these past months. First, a financial summary of Q2. We're on plan to the plan we established with the Board at the beginning of the year on our expenses. We have, as we expected, some incremental headcount increases as you look at the quarterly trends, some increases in spending on manufacturing material, as you would expect, as we begin to use our Roll-to-Roll equipment to finalize and developing the processes necessary to deliver batteries. Our ending cash at the end of June 30, 2021 was USD 7.1 million. And then subsequent to Q2 here in Q3, both the C warrants and the B warrants have now been fully expired and exercises were quite high with the number of shares that are listed 290.7 million shares of C warrants; and 195.8 million shares of B warrants having been exercised. Again, what we expected, and we're very excited to have that concluded. And so now our capital raise and the warrants are fully expired and we can move forward on that basis. On the business side, we've made a lot of progress this last quarter. First is the statement that we're on track to our target for our initial roll-based customer samples during the fourth quarter of this year, a key enabler for being able to do that is that we've validated our battery cell performance using the Roll-to-Roll equipment depositions on the ultrathin 10-micron steel that we're targeting for final product. This is a really major accomplishment by the team, both the equipment capability, the technology capability, the manufacturing ability to handle such thin steel foil as 10-micron is a great milestone towards productization. So 10-micron steel enables our ability to deliver really high energy densities. That's why that's so important and the ability to produce it on a roll-based equipment is what validates that we have a path to production scale that other solid-state microbattery producers do not have. Next, we received and installed cell-stacking equipment into our facility in San Jose. This is last month. And that then enables us to enable milliAmp our energy capacities, which is unique in the market to deliver that level of capacity for microbatteries. On the commercial side, we announced another customer agreement with a global leader in the medical hearables market. This was in addition to what we had announced prior the Fortune Global 500 wearables customer. This agreement involves a custom battery that's unique to their needs, which leverages the platform that we're delivering to the marketplace. And so we're really excited to be working with them and helping them build a unique battery solution for their application. We have other negotiations and discussions and progress of customer agreements that we look forward to announcing as they're finalized. And then we have above 10 customers also looking for samples that we will want to deliver samples to when we have them available to lead into new design engagements with them. I'm also really excited with the appointment we made of Shirley Meng, this past quarter, a globally recognized award-winning energy storage innovator, who is a professor at UC San Diego here in California, to our Technical Advisory Board. We've had multiple all-day meetings with her. She's been a tremendous asset to us, and we look forward to continuing to work with her. And then finally, just recently, we hired an electronics industry veteran, Vijay Parmar, to be our VP of Sales and Marketing, who brings a lot of insight to both the wearable markets and the hearable markets with companies and industry that he's been working on these past years. So a reminder of the market that we're targeting. It's a 1 billion unit market, combining the hearable markets, it includes hearing aids and TWS wireless headphones; it includes medical wearables that monitor medical applications or on-body applications where form factor is critical; sports and fitness wearables where it's more of a consumer application of activity or smart apparel applications; and then finally, industrial IoT or connected sensors where batteries are required to power sensors that are installed in a wide variety of applications. And so these are established markets. These are markets that exist. These are customers we are talking to now who have technology requirements that we believe we can meet and they continue to be excited about it. And all of them are growing. Today, it is a large market, and it's going to only be growing larger in time. So as you see in our announcements and our initial focus is on the left, hearables and medical wearables. We see that as being a focused market that we can have direct sales to OEMs, where the potential for customization is greatest. And over time, we will expand over to the right side as the customer base becomes larger and we would expect that to become increasingly a standard product type of marketplace. We're delivering a novel architecture into this market of microbatteries. We're leveraging our proven ultrathin steel. Now we've demonstrated 10-micron depositions this last quarter. The benefit of 10-micron steel compared to competitors using ceramics and silicon is that we can deliver higher energy density as a consequence. And our history has proven that we've shipped millions of units of EAS units on steel very reliably and with high quality. And so we know the technology. It's a protected IP, and we know how to manufacture. We're then bringing on top of that the established anode-less solid-state chemistry that was invented in Oak Ridge National Laboratory in the 1990s that bring the benefits that we talk about of intense cycle life longevity and safety as well as the energy densities that we've now demonstrated. We bring the cell stacking and packaging to the battery market that has been used in the semiconductor industry that benefits from the steel and its hermeticity, and all of that combined allows us to deliver this form factor customization that has been received quite well in the marketplace. And then the ability to deliver scale leveraging the factory that we have, the facility we have and our existing equipment set to bring initial volumes and ultimately, scale to these markets. So it's the combination of all of this that really allows us to deliver superior performance, microbatteries at scale. So more direct comparison. We look at the form factor that we are building on the bottom. We start with a roll. We deposit the layers. We then create the different size of cells by patterning. And then we simulate them into individual cells after having tested them, and we can then stack them to different heights based on the customer requirements and their energy requirements. We then encapsulate that and put the terminal metallization on. And we, on the right lower corner there, can deliver different sizes of squares thick, the ultrathin and large and a wide variety of dimensions that can meet the customers' needs, while delivering the comparison and performance that you see above rectangular square batteries with our Ensurge batteries versus button cells that can only be round, can only be thick and the energy density comparison of 2x, cycle life 2 to 3x, faster charging. It's safe. And it has -- we have flexible form factors that are enabling unique end products. So it's a very clear comparison of performance and custom ability at scale. So we're not just delivering 1 product. We have our first one designed as we announced in the previous quarter, but we are delivering a platform that allows this flexibility. And the metrics we're targeting today is to deliver up to 600-watt hours per liter of biometric energy density, long life cycles, which we measure as greater than 1,000 plus cycles. Customizable of XYZ dimensions and then on-body safe because inherently, the chemistry has no liquid electrolyte. So we're on this path along the bottom and the markets we're targeting of hearables and wearables. We've defined this product platform. And now, as I mentioned, we're focused on delivering this initial product under the samples stage with our customers by the end of this calendar year. So in summary, the highlights of our investment is that we are focused on winning with our steel and our stacking and our scale, delivering solid-state lithium rechargeable micro batteries that have superior energy density, lifetime safety versus lithium-ion with customizable form factors. We're addressing a billion-unit addressable market across these different segments. We've now announced multiple customers, and we have more in the pipeline. We have extensive IP on how to do thin film on steel with roll-based manufacturing with the internal development and the acquisition of the Kovio technology that Thinfilm did 6 years ago. And then finally, our existing production grade factory within a $40 million of equipment that was installed just 3 years ago for high-capacity Roll-to-Roll that you see. One of those tools and the image on the right with stainless steel rolling through that. And so that is the investment highlights of where we are. So that's my presentation for today. I thank you for your time, and I think we're now going to open it up for some questions.

Yes. Thank you, Kevin. I have got some questions from the audience, which I will ask you now. My name is Ståle Bjørnstad. I'm the IR of Ensurge Micropower. First of all, Kevin, when it comes to your location in the Bay Area, which is sort of quite, I wouldn't say unusual, but it's another location that most Norwegian technology companies or has -- or have. What kind of benefits do you think that, that will give you in your commercialization process with the batteries?

It's a great question. It's really vital of where we're located. Silicon Valley is really the epicenter of so much technology, so many potential customers, so many partners that we can work with, with ease of connection, the ease of networking, both at the technology level, the commercial level, the financial level, to bring the power of that region to our benefit. And so a specific example might be in my discussions with one of the major Fang customers. They specifically mentioned that they really do prefer and enjoy working with companies that are local. It's easier to work with and easier to collaborate with as we are codeveloping products together. So that's the power of Silicon Valley and how it's been such an innovation center for so many years.

Thanks, Kevin. And then another question from the audience. What kind of -- or if you see -- do you see any changes in your target market over the last 12 months, there's a lot of talk of town on batteries, mainly for cars, electric cars, of course, but -- or electric vehicles. But do you see any changes in your target market over the last -- have you seen any changes over the last 12 months?

No fundamental changes, absolutely not. We continue to talk to these top dozen customers and more that are the major players in these segments. They all are looking for the metrics that we're talking about. They want the better energy density. They want the life cycles. They want to form factors. Those needs are not going away in these micro battery applications that need milliAmp power batteries. Now some of the details, we've gotten multiple customers to meet with us on technical level and bring their subject matter experts to our engineers and collaborate. And so we've learned what they need at a technical level, but from a business market opportunity, they're engaged and the conversations continue to be quite positive. So no change, no.

Thanks. And today, you have them -- it's another question from the audience here. Then today, you have 1 manufacturing line. Are you planning to sort of start up another manufacturing line, given that the fact that you see such a huge response from the market?

Well, there will be a limit to the current facility we're in. And so there will be a point where we will need another facility. And so that is required to fully meet the full potential of this market, yes. We can be very cash flow positive with our existing facility. We can be quite successful. But to fully meet the promise and the opportunity, we will need to expand our factory capability beyond the existing facility we have.

And to follow up on that, is there any plans of licensing this sort of -- you know how technology/technology to a third-party manufacturer. Has that been discussed? Or where are you at that point?

I mean we're open to that. I think it's a little early to know the answer to that. So I think the Board and I would be open to a discussion if it was the right one to do that. We have many options on how we proceed with adding capacity. I think we don't want to put ourselves -- we don't want to limit ourselves in our options at this point.

So just another question here. You have previously said that the average price of your batteries has sort of we expect that to be a little bit higher than you first sort of communicated last year. What are your really breakeven levels when it comes to volume right now in your factory?

Yes. So it stayed fairly constant. And what the last quarter, my update we said and we continue to predict and target that it's about 4 million units per year. So it's a pretty modest number, 4 million units per year in a market that's 1 billion units. So that's what we believe our cash flow breakeven point is.

And just to remind the audience, the total capacity of your manufacturing line.

Well, that depends on the capacity of the batteries and the product mix, but it's tens of millions of batteries a year. It will depend on the capacity of our customers, what they're asking for.

So we're coming to an end here. But you're talking a little bit about it, but what is the status of the Roll-to-Roll sort of manufacturing line. Could you elaborate a little bit on that? You have got and how it has been tested and when it's sort of -- when it's working in -- when you are going to full-scale manufacturing?

No, good question. So there are several tools that are part of the battery flow. Each of the tools necessary for building batteries are now operational, that's number one. Where as we may all remember, we had put the factory in a pause when we were discontinuing the NFC strategy. So no, those tools are now up. The necessary tools for building batteries are operational, number one. Number two is, as I mentioned earlier, we have begun successfully depositing multiple different materials onto our steel, our Ultrathin 10-micron steel and measured the cell performance, the battery cell performance that we expected. So the roll equipment is producing development batteries today. Then finally, the remaining work is that these Roll-to-Roll tools, the deposition tool, in particular, was configured to build active transistors for near-field communication chips. And now we need to do lithium. And so there's some small -- not small, but there are some modifications to the equipment that need to be finished. They're not major. The modifications are showing up in the coming weeks, and then they'll be installed and then we'll be able to optimize the configuration of the roll-to-roll tool for more productivity. The changes are intended to increase the productivity of the 204 battery production. And that will then be the final step. So then we'll have operational tools successfully producing the layers that we need to build batteries and then roll the Roll-to-Roll tools that have been upgraded to what we need specifically for building batteries and be productive doing it. So it's on target, and I'm very pleased with the progress on the Roll-to-Roll tools. We will use for several of the layers, even in these initial samples, which is initial volumes, we'll use some of the roll tools to produce those batteries as well as our development line to finish them. So that's where we are today in the mix. We're using the tools in a mixed mode. Some Roll-to-Roll and some what we call the sheet line. So good progress and significant progress on the Roll-to-Roll tools.

Okay. And then the last question from the audience is that you have now or -- the Warrant B and Warrant C is now exercised, and you have a sort of a solid financing of the next sort of months to come. What are your plans to raise further funding for the company when you're going to expand?

No, it's a good question. So as I mentioned, we're very focused on the samples, and we will have the samples, we believe, before Christmas, and we'll be sending off to various parties, including the customers who've signed agreements, but in addition to some other partners. And we believe among them, we can find potential strategic and/or industrial funding partners. And so that's -- our primary focus at the moment is engaging with samples and engaging with industrial partners who may want to join us in our journey of building this company. In the meantime, we might seek an interim funding early next year just to bring focus and bringing in some U.S. institutional investors. So that work is just beginning and introducing ourselves to some brokers and bankers. So that's early days. But today, we're focused on sampling and focus on trying to find a strategic or two to invest.

Thanks, Kevin. That was sort of all the questions. So that's all for me.

Well, thank you, Ståle. Well, thank you, everyone, for your time and your interest in Ensurge. I'm very excited of where we are and where we're going, and I hope you'll continue to be as well as we give you updates in the coming weeks, months and quarters. So thank you very much, and have a great rest of your day.