Ensurge Micropower ASA (ENSU) Earnings Call Transcript & Summary

Welcome to Ensurge Micropower's Half Yearly 2022 Preliminary Report. I'm Kevin Barber, Ensurge's CEO. We remain very focused on delivering the world's first milliamp-hour, solid-state, lithium microbattery. We're focused on delivering the benefits that include higher energy density, twice that of lithium ion, leveraging our ultrathin stainless steel, as well as customizable form factors that meet the customers' needs in wearable and hearable applications. The core benefits of solid-state chemistry over liquid electric lights and lithium-ion batteries is that they charge faster, 3x faster, important for many of these consumer applications. They have faster post discharges, which are very beneficial when using RF communication, and they've been demonstrated to have longer life cycles than lithium-ion batteries. And all of these benefits and battery performance attributes we're bringing to 1 billion unit market opportunity made up of both hearables, a wide variety of wearables and industrial IoT of connected sensors, all huge market segments representing large opportunities for us to distinguish ourselves and deliver differentiated performance. We recently announced that we broadened our go-to-market strategy, and we now have a twin strategy. In addition to our commercial customers that we made great progress on in these past quarters, we've engaged with multiple strategic partners that we will pursue providing samples to in the coming days. These have been driven by major technology companies who are consistently inquiring about our core cell performance. They're made up of both consumer device and battery manufacturers. We've been having these active discussions with 4 companies for a number of months in some cases and longer in others. Their interest in utilizing our core cells in both a combination with their battery packaging or by jointly developing unique solutions together, and this provides us an additional path for our technology commercializations, whether that be through licensing models, upfront and ongoing NRE and/or equity investments as well as manufacturing rights through royalty and/or investment. We think this is a critical point in the company where we've added this focus in addition to our commercial customers, and we look forward to giving additional updates on this in the coming days and weeks. In addition, we have our ongoing focus on commercial customers. They continue to be applications in the wearable, hearable and industrial IoT markets, focused on delivering innovative solutions. These are end-market devices that incorporate microbatteries between 1 and 100 milliamp-hours. We have 5 signed agreements, and we have 2 dozen more that we're engaged with in preparing commercial conversations on. These customers are interested in customized completed batteries. And where they are coming to Ensurge is when they require performance or form factors that are not available in the market today. And we see a lot of interest in our fast charging, in our energy density and our form factor, where all of those matter very much in wearable and hearable applications. And our path to commercialization for these customers is through product sales of the manufactured batteries as well as NRE development that is required to provide support and customization to their requirements. And so you'll hear more and more about this, but we will now be focusing on both of these go-to-market and commercialization strategies in the coming weeks of strategic partners as well as commercial customers. Our value propositions remain the same, however. All of these value propositions apply to both strategic and customer engagements. Whether that be the inherent safety of solid-state chemistry over lithium ion, the energy density that our unique ultrathin steel enables, whether it's the core charging speed that solid state enables or the temperature tolerance, those are all value propositions that both strategic and customer engagements are looking for. And then, finally, the form factor flexibility that our ultrathin steel enables where unique packaging opportunities with these strategic partners comes into play, that we have a fundamental core cell on steel that enables that kind of form factor flexibility. So we continue to make significant progress, and Q2 was no exception. So strategic partners, we are in active discussions with 4 major technology companies. This establishes a completely new path for our technology commercialization. We are actively building the coin cells with our unit cells now as we speak. We will expect to have our initial builds of these coin cells we'll deliver to strategic partners completed in the next few days. And then after final testing and documentation and logistical activities, we will finish our first shipments within the next 2 weeks. So we're very excited about this new leg of our strategy of the progress we've made on strategic partners, and we'll continue to give updates in the coming weeks and days. On the commercial customer front, in the last quarter, we added a dozen new customers to our pipeline of active engagements. That's a really huge increase. It doubles the number of customers we're engaged with beyond the 5 signed agreements. I'll talk more about that in another slide. And then just recently here in the U.S., the FDA approved that hearing aids can now be sold what is called "over the counter," not requiring an audiologist to prescribe and implement a specific hearing aid for a customer. The FDA estimates that this addresses 30 million people here in the United States that are underserved or hearing impaired that today are not serviced by the existing hearing aid market. That widely expands our opportunities as we focus on delivering batteries into the hearables market segment. And then, finally, our customers have continued to engage with us, both in-person meetings here in San Jose, detailed technical updates over the phone and video, and solving and implementing their solutions and defining their product requirements into our technology. On the technology front, we had significant breakthroughs this quarter, as we recently announced. We implemented a number of interfacial engineering breakthroughs. And much of this knowledge based on our scientific adviser, Dr. Shirley Meng, is also knowledge that can be translated to not only microbatteries but to how large-scale, solid-state batteries are manufactured as well. So these are robust and important breakthroughs that we're very excited about, which enables higher performance cycling, higher energy capacity, all led by having lowered the impedance of the interfaces and involved in the architecture of our battery. So as we look forward to the balance of the year, we have several ongoing focuses. We'll continue to pursue in parallel the commercialization path of both strategic partners and commercial customers. We'll be delivering the coin cell samples to these potential strategic partners within 2 weeks, and we're actively building them today, have been for these past days and weeks. We will then deliver initial stacked samples to customers, and we're preparing for operational readiness for production deliveries. This is an update to a slide that we shared last quarter on where we are in the customer engagement, and what's changed in this slide is the additional 12 active engagements there in the middle of the slide across a wide range of applications. The wearables represented 8 additional active engagements from last quarter of the new 12, and then 4 of the new engagements are in the wide variety of things that we've engaged in that are looking for unique performance microbatteries. That doesn't reduce the pipeline behind that. We continue to have another group of next targets of another dozen or so customers we want to add into the active engagements, and we still see a large broad pipeline behind that across IoT and wearables and hearable applications. We always give this update as a reminder, but our novel architecture is built on 4 key elements. Our ultrathin 10-micron steel substrate, that is a huge part of why strategic partners are coming and talking to us about what that enables for energy density, what that enables for what we can do with a wide variety of packaging. We will continue to focus on anode-less, solid-state chemistry, the LiCO/LiPON system. It enables lower cost, enables longer life cycles, and it enables rapid charging in high post discharges. We're leveraging then our roll-to-roll manufacturing facility to deliver all of that with high throughput and low cost in a non -- excuse me, in a conventional manufacturing environment, not a dry room, which traditional lithium metal anode battery manufacturers must employ, increasing the cost. We can do that in a conventional manufacturing environment. And then our innovative cell-stacking and packaging, which continues to maximize energy density, provides customizable batteries and direct PCB connections in contacts. And it's in this area, the packaging area, where we would expect with our potential strategic partners to find a lot of co-development activity potential as they bring their own unique technology to the conversation of how to build a battery that best meets their needs and their final products. For Q2 financials, we concluded the quarter with a cash burn rate of $5.9 million, which is consistent with our guidance of $6 million a quarter. We have a slight increase in expenses driven primarily due to a once-a-year property tax payment we must pay here in California. But we continue to expect our cash burn to remain consistent with our quarterly guidance of USD 6 million per quarter. So in summary, we continue to focus on delivering milli-Amp-Hour class solid-state lithium micro batteries with their novel architecture that can deliver superior energy, lifetime charging versus what can be achieved with liquid lithium-ion batteries. We can enable customizable form factors, and it's enabled with our 10-micron steel substrates and our innovative stacking and packaging. We've now added another path to commercialization with our focus on strategic partners, who are focused on our core solid-state cell built on the ultrathin steel and understanding what that can deliver to them and what can be done with that at a more fundamental level. It continues to lever all of our key technology value propositions, and so we're very excited about the opportunity that these represent, in addition to the huge product market that is in the market today, 1 billion units, $10 billion addressable market across hearables, wearables and IoT sensors. We will leverage our existing production-grade factory to deliver on all of that, and we continue to build barriers to entry with our extensive intellectual property and our manufacturing know-how. So I want to thank each of you for joining today. And that concludes my presentation, and now we'll open to some questions.

Thanks, Kevin. Thanks for the presentation. I have some follow-up questions. And clearly, the questions are dominated around your -- the interest from these multinational companies, which we have -- the company has talked about earlier. So first of all, can you elaborate a little bit on the strong interest for these core cell samples from these companies, sort of tell us a little bit more about sort of how that interest develops?

Yes, it's a really good question. So these -- in each of these cases, these are sophisticated battery companies across a lot of different business focuses. But nonetheless, at the end of the day, these are companies with sophisticated understanding of batteries, and they recognize the need for better-performing microbatteries. Today, no one is addressing a fundamental improvement in some of these parameters that we're speaking to beyond what Ensurge is doing, and so that's where the conversation starts. And then further, as we've discussed with them over time, it's become clear that their interest is in the core cell, what we can do on our ultrathin steel and with our LiCO/LiPON system chemistry, then what that solid-state performance can deliver to them. Some of these companies bring their own technology. They have their own packaging capability or ideas, or they have their own applications that require packaging approaches that are different than what we're today pursuing. And the steel have -- the ultrathin steel has the potential of providing them with different form factors that go beyond what we're committed to in our product strategy today. And then, finally, they are looking as well for partnering and potential opportunity to license and manufacture as they also see that the market itself is huge. The market itself has an opportunity to improve the experience of users of these devices with higher life cycles and faster charging speed and more compact designs. So there is an overlap with our commercial side, but there's a level of sophistication with these conversations that allows us to do things beyond what we're doing today.

So a follow-up question on that is sort of what will sort of a potential contracts/agreement look like with these strategic partners?

Well, it can take a number of forms, and it will depend on the nature of the company. These companies have a range of business strategies and interest, and so they will not all look the same. I'll start with that. So the range of possibilities includes licensing. They want to license some form or all of our technology for their own use. Of course, that can take multiple forms, but that certainly is one possibility. A second, maybe more near-term likely scenario, is some form of joint development where there's a space, an area of development that is of interest, that they wish to fund, whether it be through NRE or equity or both, that we then work together to deliver to them for what they see as their requirements to meet their business strategy, which, as I said, is a broad range of possibilities. And then, finally, manufacturing rights, ultimately, which probably isn't the initial conversation. But if in the end we wish to entertain that, it could ultimately lead into full manufacturing rights to make the batteries themselves. So it's a step-by-step conversation. I would expect all of those to be discussed with multiple of these partners.

So do Ensurge have the capacity to manufacture samples to sort of all the customers waiting for the packaged battery as well as samples to these strategic partners?

Yes. As we said in our press release, we're very happy. We've increased our output. We've increased the rate at which we're producing roles and sheets in battery cells. It's improved our learning rates, but it's also increased the quantity of cells available to do all of those things. And so we have adequate capacity and activity to satisfy the cells we're going to provide to strategic customers, as well as to continue in parallel the packaging effort and the stack batteries we intend to sample to our commercial customers. So yes, we have ramped up our capacity and our run rates to sufficient levels to do both of those.

And just to make sure, these batteries are ready for delivery now? Or is it still going to take some time?

Well, we're building them now. So we have initial data. So we're on track. So we're literally within days of completing the initial batch of them. And then we would then need to finish our testing and prepare them for shipment to the various companies that we need to get them to logistically. And so -- but we're in the midst of actively building them now, and we would then expect to have these initial shipments within the next 2 weeks.

So the strategic relationships, I understand it's hard to sort of say too much about it. But from Ensurge's point of view, how do you expect these strategic relationships to develop? And do you expect the pipeline of strategic relationships to increase over time? You said that you are actively engaged with 4 now.

Yes, that's right. We are in active discussions with 4 today. It's almost a day doesn't go by that we're not talking to one of them. But we do have several more just behind that. We have meetings scheduled with several more today that will be initial conversations. And I would expect that to be possible that we'll add to the 4 where the conversations get a bit deeper and lead to sample shipments and so forth. So there is a pipeline. It will not be as big as the commercial pipeline. The number of companies who fit the characterization of strategic partners is a bit smaller. But these are all major technology companies that we're talking to, and we'll continue to pursue more as we go forward. But yes, we have the 4 today, and we have several more actively in the pipeline today.

Do you see any sort of benefits? I guess I'm asking what synergies between the 2 sort of distribution strategies?

I do. These conversations with the strategic partners does not preclude the possibility that they also will want our packaged solution as well. What we're providing in our packaged solution is very competitive. It's very -- it brings a lot of unique benefits. It meets the requirements of many applications. And the 1 billion unit market that exists today is relevant to some or all of these strategic partners. So it's not to dismiss that at all. So there's clearly synergy there. I think we're just making the distinction that for these strategic partners, there are opportunities beyond, opportunities beyond the packaging technology we're developing to explore and work together on other implementations, other attributes of our technology that enables solutions that they see as critical for their strategy or for what they see as new opportunities emerging in the marketplace. So yes, I think they're connected. I think they're related, and there's certainly synergies between the 2 commercialization strategies.

Yes. And sort of just get your -- a little bit more comments on that regarding the FDA ruling on the hearing aids. How will that affect Ensurge, the addressable market for Ensurge?

Yes. As I said in the presentation, it is going to clearly, here in the United States, it's going to expand the accessibility to more people for these type of devices. And I think the analogy that is similar is glasses. Many of us wear prescription glasses. We go to a doctor, they prescribe it. You get the glasses made for you, and it helps your eyesight in a fairly sophisticated way. But for some of us, as we get older, we need assistance with reading, and there is an opportunity to buy over-the-counter reading glasses that you don't need a doctor. You can just go to a store and buy them. And the volume increase of the sale of glasses has dramatically increased. I think hearing aids are a little more complex than glasses. And not to diminish the sophistication that hearing aids represent. But I think there are cases where for some people, hearing loss is a -- to a lower or lesser amount, but would benefit from a lower cost, less medical device type of hearing assistance. And the FDA estimated that, that underserved population here in the United States is 30 million people. That's a big market. It's -- today, the hearing market is 25 million hearing aids are sold globally in the world today. So adding 30 million customers to that market is significant. So we're very excited to see how the market evolves, but it certainly will begin to grow over the years. So that's very exciting for us.

And you or Ensurge said in a press release, the last press release the company sent out, that there could be sort of or the technology could be adapted by larger solid-state manufacturers. How do you see this? And what's your comment to that now?

Yes. Yes, it's true. These are recent learnings. We've had these breakthroughs come to fruition over these last several months. So in our most recent regular review we have with Dr. Shirley Meng, our technical adviser, as we were discussing them, she very strongly believes that those learnings are applicable to other sized batteries, the work being done in solid-state batteries by other companies and more of an EV space. We haven't begun to really explore that yet. It's a new conversation, but we will. And we'll go and begin to define what we think is plausible, what we think is applicable more clearly, and we'll pursue engaging and testing this idea that we think some of these ideas are applicable there. And we'll see how it proceeds. So that's -- it's early days. But yes, we think, based on Shirley's comments, that there's potentially an opportunity there.

So based on what's happened over the last quarter, we should expect some exciting news from the company going forward then?

We look forward to doing that. And yes, we do expect, as we engage more deeply with the strategic partners, we will have news step-by-step through the process, yes.

Okay. Thanks, Kevin. That was the questions for today.

Well, thank you, Stale. And thank you to all who have joined and have listened in to our quarterly update. I appreciate your interest in Ensurge and your time, and we look forward to giving you updates in the coming weeks as well as next quarter. So thank you, and have a great day.