Ensurge Micropower ASA (ENSU) Earnings Call Transcript & Summary

I want to welcome you to Ensurge's Q3 2021 interim report, and welcome you to this quarter's report. I'm Kevin Barber, CEO of Ensurge. A quick reminder of our safe harbor. We continue to make great progress in our business, both technically, commercially and with the team. This past quarter, we were able to build our first stacked battery, utilizing our cell stacking equipment that we've recently installed into our San Jose facility as well as the roll-based unit cells that build up each of the layers of the battery. This incorporates our unique Ensurge integration of material and process technology, enabling us to deliver milliamp-hour-class microbatteries into the markets we are serving. This is a very significant key milestone towards delivering our customer samples that we've been targeting to deliver this quarter in Q4. We also signed our second customer agreement with a global leader in medical hearables, which expands our coverage in this very important market segment. In addition, we have multiple proposals and negotiations with prospects in both the medical wearables and the industrial applications. And each of these engagements, form factor and the energy density benefits of our Ensurge micro batteries, play a key role in their interest in our technologies. And in fact, some of these applications are only viable with our unique architecture and value propositions. And then finally, we hired a veteran operations leader, Jay Tu, who comes with years of roll-based manufacturing and low-cost manufacturing in the RFID space, and we're very excited to have him join us to build out our factory here in San Jose. On the financial side, we ended the quarter with USD 13.1 million, having spent $6.8 million in cash. When you normalize that for the lump sum catch-up principal payment we made to Utica, our spending run rate is adjusted to $5.2 million, just slightly more than in Q2. So we are maintaining our expenses at our expected levels. A review of our strategy is where we are focused is on delivering solid-state microbatteries that address the market requirements that demand small, thin, flexible form factors, higher energy densities and longer lifetimes than are available today in the marketplace. We're targeting an existing 1 billion unit market where they are looking to grow with higher performance batteries. We are focused on delivering solid microbatteries that are superior to lithium-ion while leveraging our proprietary IP and our unique technology platform. Our microbattery focus continues to be hearables at 560 million units, which include hearing assist as well as wireless headphones. The medical wearables market of 150 million units that involves monitoring health, whether it be on the wrist, the finger or in the ear. It continues in the wearable space for activity measurement and smart apparel and the sports and fitness applications, as well as IoT connected sensors, 240 million units that involve environmental sensors and many, many applications in the world. Taking a deeper dive in the hearables market, it includes both true wireless, which in 2024 is forecasted to be over 500 million pairs of [ Air Bud/Pods ], which then means 1 billion batteries. This market is currently already fully rechargeable. And the trends are to continue to add more and more health features and a convergence with hearing aids. These devices typically have between 40 and 70 milliampere hour capacities and are a very perfect fit for the technology that we are developing in milliamp-hour-class batteries. The hearing aid market in 2024 is forecast to be just over 20 million units, and it's now moving from primary into increasingly the use of rechargeable batteries into a wide variety of form factors, whether it's over the ear or in the ear canal. They're lower capacity batteries compared to true wireless, between 15 and 25 milliamp-hours. One of the big trends we see is here in the United States, a government initiative to allow hearing aids to be sold over the counter, which will greatly expand this market segment as it's an underserved market, given its very high price points today. The IoT connected sensors market, as I mentioned, is just over 200 million units in 2024. It also is between 1 and 50 milliamp-hour in capacities. The big trends that enable these kind of sensors is the increasing use of 5G combined with energy harvesting can install life -- years of life-cycle batteries, which has large temperature ranges, long cycle lives and require slow discharge rates, all of which are a perfect fit for solid microbatteries which Ensurge is developing today. And then finally, wearable applications that go across both patient monitoring, whether it be in a ring format or wrist format, smart contact lenses, smart apparel. All of these applications are form factor sensitive, requiring unique form factors to enable the optimization of their applications. And so it's a perfect fit for the technology that we're developing. So we've shown this before, which is our novel architecture. I'm going to give a little more detail on the subsequent slides. And so just to remind the key elements of the novel architecture, it starts with the anode-less solid-state chemistry that's been demonstrated to have longevity and safety. Built on our proven ultrathin steel substrates that has been in proprietary development for many years here, which allows us to maximize the biometric energy density. We then bring our innovative cell stacking, which is what we've been working on this past quarter, which enables then form factors as well as customization. And then finally, our ability to bring scale to this market with our existing scale up Roll-to-Roll factory, providing a cost-effective path to high volume. So just a little diagram that shows what the concept of the anode-less solid-state chemistry is, the steel substrates in the bottom, and then we added the layers above that. It includes the cathode collector, the cathode, the electrolyte, the anode. And you notice, as manufactured, allowing us to build a low-cost battery. There is no anode until it's charged. And so when we charge it up, the lithium anode is created and thus, it's called an anode-less solid-state architecture. We expect over 1,000 cycles, as has been demonstrated in the original work by Oak Ridge National Laboratories. And it also fundamentally enables rapid charging. We placed those layers on our ultra-thin steel, 10 microns ultra-thin steel that enables high energy densities, we deposit the battery layers and then we do customizable patterning that we inspect at the end of that manufacturing steps. Our initial product was created as an 8x8 millimeter square cell. We then continue with the multilayer stacking. We add a compliant overlayer, moisture bearers and the final termination and encapsulation before we now have a final battery. The image in the upper right, you can actually see the stacking process in our equipment here in San Jose as we make and manufacture stacked batteries. And then finally, our scale-up Roll-to-Roll factory, a key part of our strategy, high-throughput automated factory that was installed in 2017 as well as the cell stacking equipment that we've now added this year. And when this factory is fully equipped based on mix, it has the ability to deliver USD 100 million EBITDA per year. You can see on the right then, the image of the building which includes the 2,000 square meter clean room within the 6,500 square meter office and lab area. And the equipment then in the center of this slide, the Roll-to-Roll deposition, where you can see that machine is depositing layers on to that long role of steel. We have highly automated roll-based testing, and then we go into high-performance packaging with stacking to create the final batteries. So those are the key elements of what we bring to this market and what we can then deliver as product as an Ensurge [indiscernible] solid-state battery that has higher energy density than lithium-ion, recharge cycles that are longer lifetimes, more rapid charging speeds, safer batteries and then flexibility and the form factors that can be delivered to the marketplace. You can see it's several at the bottom, whether it's a compact square battery, whether it's a very ultra-thin battery, very appropriate for wearable applications or any combination of that. Our customers are very attracted to the ability for their applications to be optimized by custom batteries. Our execution remains on track. This is an update to a slide that we've shown over the course of these past 2 years. We continue to make progress technically as well as commercially, having now begun to stack batteries. We continue to target delivering our initial roll-based samples during the later part of this quarter. And then as we go into next year, we, as I mentioned, have additional customer discussions. We would expect those announcements to occur as they are finalized. And then initial volume production to occur later next year as we continue to improve our cost center yields and engage with customer qualifications and ultimately, end product [ design ends ] with the expectation that as we increase our volumes, we reach cash flow breakeven towards late 2023. And so in summary, we continue to be really excited with the progress we've made and our focus on winning in this business with our steel, our stacking and our scale in delivering solid-state lithium rechargeable microbatteries, customizable form factors and superior performance into a very large billion unit, $10 billion addressable market with hearable applications, wearable applications and sensing applications. We have established and continue to build barriers to entry with our IP as well as our thin film and roll-based manufacturing know-how. We will use our existing production-grade factory to provide scale and growth into this low-cost application. And ultimately, when the facility is full, we have a very profitable business model with $100 million of annual EBITDA. So that's our update for this quarter. We're very excited with the progress that we've made. I want to thank you for listening, and I look forward to giving another update next quarter. Thank you very much.