Ensurge Micropower ASA (ENSU) Earnings Call Transcript & Summary

Hello, and welcome to Nordnet. Today, we are joined by Kevin Barber, CEO of Ensurge Micropower, previously known as Thin Film Electronics. My name is Roger Bernsten, I work as an analyst here at Nordnet. Before we move on, it's important for you to know that these sessions shall not be considered an investment advice. Our only goal is to learn more about Ensurge, the company, this will -- and its underlying industry. So Kevin, before we move on to the Q&A session, you should run through a short presentation. So I'll leave it to you then.

Well, great. Thank you, Roger, and thank you for inviting Ensurge again to join the Nordnet session. It's exciting to give an update on the progress that we've made. And so as we mentioned here on our slides, one of the things that happened in our last quarter is our rebranding and renaming of our company to Ensurge. We're excited about that because it better represents what we're doing on delivering superior microbatteries into the microbattery market, where we're energizing and enabling innovation and bringing solid-state batteries as well as the momentum that we believe we have in addressing these market needs. Our focus is delivering a superior replacement in this billing unit market. And we're uniquely focused, as I mentioned, on the Microbattery segment, which is a 1 billion unit market. But it's in the broader context as the global investment trend accelerates and investing in solid-state lithium technology that replaces lithium-ion. What Ensurge is bringing is our proprietary intellectual property and unique technology platform of having produced high-performance electronics on ultrathin stainless steel. We've been developing this for many years prior to our focus on batteries and build -- we'll be building our battery strategy on that basis. We're also bringing multi-cell stacking innovation that comes from the semiconductor industry that is well proven, that will allow us to deliver milliAmp-hour capacity batteries that are appropriate needed for the markets we're targeting. Our batteries will target delivering twice the energy density and 3x the cycle life that lithium-ion today can provide. And because it's solid, it's fundamentally safer than a liquid electrolyte lithium-ion battery. And these capabilities directly address the unique market requirements of the wearables and the hearable markets where form factor, energy density and long lifetimes are critically important for their applications. So a progress update from this last quarter, we have been forecasting that we intend to deliver customer samples this next quarter in Q4, and we're on track for those initial samples, so that will be role-based, I'll talk about in a minute. A big technical update that we have made that is, we've validated the battery cell performance, using our roll-to-roll equipment with depositions on ultrathin 10-micron steel. This is a very big achievement because ultimately, the ability to deliver batteries on such thin steel allows us to deliver unmatched energy densities in our microbatteries. And it also validates that we have a production scale path using roll-based manufacturing to deliver volume manufacturing to our customers. We've now installed our procured cell stacking equipment. And with that, stacking cells on top of each other will enable our ability to deliver milliAmp-hour energy capacities, which are needed in these market spaces. We announced an additional customer agreement with a global leader in the medical hearables market that is looking for customized batteries that are uniquely sized for their specific application. And that's in addition to our previously announced Fortune Global 500 wearables customer. We have additional customer agreements in the pipeline, and we look forward to announcing those once they're concluded. On the team side, we're very excited to have Dr. Shirley Meng join our Technical Advisory Board. She's a globally recognized award-winning energy storage innovator, who is helping us in our technology development and looking to how to improve it further, and so we're really excited to be working with Shirley. And then finally, we hired a Vice President of Sales and Marketing, Vijay Parmar, who has extensive experience in wearable, hearables and broad electronics industry who's bringing great insights to our go-to-market strategy. As I mentioned, we are targeting a series of markets that, in total, are as big as 1 billion units, they're existing, they're established and they're growing. And we'll be starting on the left in the Hearables segment, which includes hearing aids and true wireless stereo applications of hearable products, the medical wearable space, and the industrial IoT space where we see lots of applications where connected sensors is a big requirement. We have consistently had very positive feedback from all the major OEMs we're talking about as we prepare to provide them samples that give them higher energy density and longer life cycles. They're excited to receive those samples, and they continue to validate our strategy going forward. So the novel architecture that we continue to focus on is built on our ultrathin steel substrates. As I mentioned, the big technical milestone we achieved this last quarter was the cell energy density demonstration on our ultrathin 10-micron steel. We have, in the past, delivered millions of units of EAS units on this steel platform. And as a result, we're very confident on our ability to manufacture high volume using steel manufacturing. We've been now focused on bringing anode-less solid-state chemistry that was invented in 1990s this past year in delivering entitlement energy densities, and that has been another major achievement that we've done in these past months. We're now bringing our new packaging equipment to have our innovative cell stacking and packaging that allows custom form factors for our customers, and that's where the focus has turned now moving forward. And last, our ability to deliver scale, which is unique in the microbattery market for solid-state battery producers to be able to produce millions of units as customer demand requires. And so those combinations of our steel, this proven anode-less solid-state chemistry, our stacking technology and our existing roll-to-roll factory, is what positions us as uniquely positioned to win business in this marketplace. So as we look at our platform across energy density, recharge cycles, charging speed, safety and across the board, we bring differentiated performance against the lithium-ion technology that we can bring to scale as we can see across the bottom of the slide. We start with rolls that deposit the layers. We've develop the cells that then we stack on top of each other that then brings a final production battery. And we can do that in multiple form factors, as you can see thick and square or rectangle or very ultrathin batteries appropriate for the customers' requirements. So this microbattery product platform, we have our initial design that we've announced. We now have an agreement with a customer to develop a custom size, and that represents our ability to deliver different form factors with VEDs up to 600-watt hours per liter. That is a very high performance, above 1,000 cycles of lifetime with no liquid electrolyte among this range of X, Y dimensionality. So in summary, we're focused on winning in this market with our steel, with our stacking and our scale, delivering solid-state within rechargeable microbatteries with superior performance and customizable form factors. We're targeting 1 billion unit market, that's a huge market and it's growing. We have extensive intellectual property and how to do this Thin Film and roll-based manufacturing that's been built for years upon the Kovio technology that Thin Film acquired 6 years ago. And we have an existing production-grade factory that we can leverage to deliver millions of units of production to our customers. So thank you. And so that concludes my presentation, Roger.

Yes. Good. I have now prepared some questions. I guess some of these questions you already touched upon. But anyway, we are likely to repeat your answers. So, yes, first of all, since you -- last time, you have changed name to Ensurge Micropower. So could you please tell us what's the rationale behind this name change is? In addition, your value proposition hasn't changed, and that's the most important thing. But for those of who don't know Ensurge, could you briefly explain who you are and what you do?

Yes. Great. So Ensurge really best represents our new strategy of delivering innovative, high-performance, solid-state batteries into the marketplace. The prior name Thin Film simply didn't connect anymore with our new strategy. So we felt in the eyes of customers that we needed to position ourselves to represent what we're now doing. But as you point out, we're building on the technology foundation that companies invested in these many years. The fundamental idea of building premium electronics on thin, solid -- excuse me, stainless steel substrates with high volume roll-to-roll capacity and capability that is unique. And so we're leveraging the existing intellectual property that we have and the existing factory that we have. But from a go-to-market point of view, we felt it was important that Ensurge represents the enablement and the energizing of the innovation and the momentum that we're bringing to this market. So we're very excited about our new name, and we're excited that we're making great progress using our existing technology.

So -- yes. So I would also like to touch up on things that I've heard from many companies around -- in many different industries. They have experienced lots of problems. There have been various supply chain issues, because of bottlenecks in the [Indiscernible], it's all because of the COVID-19 situation. So has anything gone as planned for you in Q2?

Yes, it's a very real issue around the world. And so we have faced some of those challenges as well. I think -- so we've had occasional delays because of logistics in shipping the materials we need. We've had some challenges. I think I've mentioned in the prior call, with our equipment suppliers being able to come visit us to help us with some equipment improvement activities. And the team -- our team has adapted. We've found ways to mitigate the supply chain issues on how we approach our suppliers and work with them. We've also gotten very good at using video to work with our suppliers to work with their equipment. And so we're all adaptable. And so yes, there's been challenges. There's been some delays here and there. But we're all learning to work in this new environment.

So I'd like to conclude the Q2 report. So overall, how satisfied are you with the development in the second quarter?

Yes, I'm very happy. I just will say, again, I think it was a huge milestone to having put our factory on pause nearly 2 years before and be able to bring the equipment back up into production operation, have it be functional in a new technology to be able to have it be fitted with the battery materials and then to successfully build on ultrathin steel, which the company had done steel but not so thin. And then ultimately, to build the entitlement energy of our battery performance on that ultrathin steel. And so that was a big achievement for Q2, that's the foundation for the battery cells. And then second, we brought our packaging equipment and installed them. They are operational. So now we have the equipment to automate the stacking of these cells into the milliAmp-hour batteries that we need. And so the focus now turns to that. The focus turns to stacking batteries, working through the technology and engineering work to deliver these initial samples to customers and partners in the market.

So I have discussion concerning our financial situation and many investors. We have lots of shareholders in -- at among the Nordnet family. So -- and for me as an analyst as well, I keen to hear some things about the situation. So you are not a profitable company yet. That said, can you shed some light on your selected business model and potential future new streams? My main question is that do you have sufficient cash reserves short and medium term? Or will you need capital injections at a regular basis going forward?

Yes, it's a good question. So first, you mentioned the revenue model of the business model. So our business model at a fundamental level is to design, to manufacture and to sell batteries to OEMs and customers into the marketplace that they want batteries that may be customed to them or maybe sizes that are standard to us. But nonetheless, that is our business model. And we -- first, we'll start with the samples that we'll provide as we target the end of this year. And then that will then allow customers to have the confidence to begin to design into their OEM applications. And we would expect initial revenue to occur in 2022 to begin the revenue ramp to go forward. So of course, that brings us back to the need for cash. As we had discussed before, in the past year, we had 3 private placements, 2 of them involve warrants. And so as we've announced, the final warrants expired in late August. So the warrants have now been fully exercised, 94% actually, of all 3 warrants were exercised, which is great. And with all of that new cash, we should be -- have sufficient cash to operate into Q1 of next year. So that's what we announced in our Q2 report. Our focus is on these samples. And then what we are targeting is hoping is that with samples that we can bring a strategic investor into participating in a new round. So that's our primary path. We're also starting to prepare for a possible January raise connected to some U.S. investment bankers that we're talking to. So as we've talked about in the past, we want to expand our investor base. And so that's in progress, but our strategy is to demonstrate these samples and build on that going forward.

So I'd like to talk about your R&D capabilities. It's for sure, an effective R&D division is great importance for every company, including yourself. What can you tell us about your R&D capabilities today and your prior achievements?

Great. Yes, I think the team is absolutely fundamental to any successful business. As we pivoted from the prior strategy, we went through a fairly substantial restructuring. And so we kept the core people -- the core technology people who enabled the technology for building performance electronics on steel. And so in the beginning of COVID, early 2020, we had less than 20 people. We had focused on the team we needed to build up to build a successful solid-state battery business. Since that time, we're now at -- in the high 30s, so we've added roughly 20 people this past months. And it's been battery chemists and packaging experts and the test and product people, go-to-market people that have the experience that are necessary, key equipment people that know how to run the roll-to-roll equipment. So they are the -- a broad set of skills. And so we have a complete team now that can deliver a whole product focus on the batteries. And so I look at the team as being 50% of the core team that was there from the beginning and 50% new skills that we've added a great technical people that know the market and know the technology that we're targeting now going forward. And so on to the milestones, that's what we've delivered. We've delivered a demonstration of entitlement energy. We brought up operational that roll-to-roll equipment. We've delivered 10 microns steel on a roll-to-roll with high performance battery performance. And now we've selected and procured and installed packaging equipment. And so we've maintained our milestones we had set for ourselves. So I'm very pleased with the progress of the team.

So you announced in Q2, an agreement with a Fortune Global 500 company. So at that point in time, will a customer like this be revealed by name? So my question is why can't you tell us today?

Well, yes. So it's not uncommon for OEMs to ask for their name to not be said in the early days. In this case, it's actually part of our agreement that we cannot say. So it's actually an agreement we agreed. We would not mention their name at their request. What I would expect is that when we reach a point that we're shipping production and volume, and now the product is in the marketplace, then they are usually even in these special cases, an opportunity for that to become known publicly of who that is and the connection with our company.

So a couple of questions left, short-term triggers. What can you tell us about that? I guess there are a lot of news flowing in the coming quarters. So -- but what can the investors expect and when?

Yes. So as I mentioned earlier, we have additional customer agreements in the pipeline. So we would hope and expect that in the coming months that we will have additional customer agreements to announce. Then second, we would continue to make technical and manufacturing updates that are significant. And finally, when we're shipping our first samples, we would be announcing it. So it's across the business, customers, technical progress, sample progress, all of those we would expect to be talking about in the coming months.

So I'll let the last question is -- it's a little bit open question. It's about concluding remarks. Are there anything you would like to add before we conclude this session? For example, what will be your number 1 priority or focus area in the next couple of quarters?

Yes. Number one, I just summarize and say we are measuring ourselves that we're hitting our deliverables, and we're really excited. In general, we've -- in the context of COVID, in the context of a new strategy, we've been hitting our milestones. And so I'm very proud of the team and the progress we've made. And our big focus right now is to deliver these samples then as customer validation that is proof of the technology, that's proof of our capability to build the product. So that is where we are focused. Of course, we're continuing to focus on customer agreements and go-to-market as well. But if I were to boil it down to one thing, it would be the samples that we intend to focus on, that will then launch us into the next phase of the company.

Yes. Great. Okay, Kevin, thank you for your time and your insights. We will keep in touch. I guess we will talk again early next year. And to all those who listened in, thank you, and goodbye.