Ensurge Micropower ASA (ENSU) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to this Ensurge Micropower update. My name is Stale Bjornstad, and I'm the IR of Ensurge Micropower. Together with me today, I have Mark Newman, the Interim CEO and Ensurge Micropower. Mark will now have a presentation first, and then we will open up for a Q&A session. So please, Mark, the floor is yours.

Thanks very much, Stale. Hi, everyone. So we're going to go through a few slides I prepared for today's meeting, and then we'll have some time for Q&A at the end. So of course, I'll just start with forward-looking statements. Take a quick look and then we can go straight into executive summary. So all of these points we're going to go in more detail through the slide deck, but I just want to touch on the key points. If you recall a few weeks ago, well, when I took over this position from Kevin, I set some of my key targets of what we're going to be doing, taking over this company. And what I would like to do now is provide an update on some of the things we've actually achieved and the things we're actually continuing to work on. So first of all, fundraising, as you know, we secured NOK 50 million fundraising, pending approval of the EGM. And we are now starting the next steps, next process with meetings with financial investors and despair advisers and investors. Secondly, on the cost reduction, happy to announce that we have met that a 30% cost reduction target. I'll discuss a bit more on that slide coming up. And I do think there is potential to lower costs quite a bit further, but we've hit the minimum or the target, not minimum, the target I set, which is 30%, we've already hit that. Thirdly, the new leadership team. So myself, as interim CEO, we've made a few changes, a few HR actions, which is related to the cost reduction, a bit of a slight reduction in force. But the key technical team remains unchanged and no impact to the key actions we're working on. And I have some updates for you on the longer-term transition plan as well. Fourthly, here, accelerating sales and commercialization. I'm going to talk about this. We've prioritized the customer pipeline, and we are focusing much more on these customers that are willing to pay and are going to be further updates in due course. Technology uniquely differentiated as I've already talked about in the past. This technology is really extremely unique and differentiated, and we've just published some data on that, which I'll mention later on. And then finally, on the manufacturing side, we are working now on the scaling up readying for production. And as you work on the scale up, essentially, you're improving the production flow for higher capacity. And in that, there's still challenges we're ironing-out challenges remaining as is in old technology products, battery semiconductors need to be ironed out, but progress is still on track.

Okay. So if we go to the next slide, on fundraising, as I mentioned, NOK 50 million equity issue has been secured, pending approval. The next posters has started. So we are still looking at raising money into the U.S. subsidiary. And we've had some meetings with our financial adviser to discuss how that may work. And I have also started to meet with a few investors, which includes financials and strategies. But we're very early in this process. And we are considering a few various options of how we could structure this. But we are still looking at raising money in the U.S. Inc. And we're looking at other longer-term options such as potential U.S. listing of the U.S. subsidiary and potential exit or other partnership options with strategic partners. Next slide, on the 30% cost reduction. As I said, we've met that target. It's actually over 30% when you compare to the Q1 '22 levels. And there's a number of other areas we're looking at to potentially reduce costs quite a bit further, such as subleasing options of our property -- and we continue to seek more improved optimal financial structure for the company.

Next slide, Slide 6, on the leadership team. So as I mentioned, the technical team is unchanged. I've been spending some time in San Jose working closely with the team. We did have to make some necessary reduction in force, which was mainly for our cost reduction target. We had to do some -- but what we did was -- the reduction in force we made did not impact the key activities, which is predominantly the technology and manufacturing side. And so we're not planning any further HR actions. And on the longer-term leadership team, there are 4 candidates for a permanent CEO, excellent candidates, I would say, and I've met with all of them. And we just -- basically, what I'm trying to do here is, obviously, we want to find the right candidate. But what's key is smooth transition plan. So I'm not going anywhere without a very smooth transition plan in place. And so it won't impact -- should not impact any key activities -- so anyone who comes in to take the CEO role will have to be able to have a smooth transition with myself and be able to work with the team in San Jose. That's critical. And then finally, following these recent HR actions we've made and some equity incentives, I think now the team is highly engaged and motivated. We did have -- obviously, we did have to make those actions. So those were anticipated because we had already announced the 30% cost decline. So people were somewhat worried about those actions, but now those are done and behind us, I believe the team is actually very much engaged, motivated and progress remains on track for the company. I'm happy to talk about that more. Next slide on commercialization, Slide 7. So what we've done here, I said what we're going to do is prioritize customers that are willing to pay. So we've gone through the pipeline. It's over 20 in the pipeline, as I've mentioned. Actually, our leads are actually over 100, I believe, but the 20-plus are the ones that we've qualified that are actually meaningful opportunities for us where the product actually fits their needs. What we're doing now what we've done is we've further prioritized that into the top 5 and top 10 opportunities, and we're reaching out to all of them one by one. And we have started several discussions with these customers. I just had one meeting actually just now. And the customer interest is significantly larger than the current capability. So we are able to prioritize because in our meeting, what we're saying is if you want to have access, early access to samples, preproduction samples, which are the final -- going to be the same as our actual production products, you -- essentially, you have to pay for access to that. If you're willing to wait then they have to wait because we don't have capability right now to serve all the customers that we're talking to. So that's the message. And we are offering those early samples to customers or partners that are paying that we to pay. I mentioned, and I think we've mentioned a few times once or twice in a way before about 1 additional strategic partner. And some have reached out asking is that still on track to sign? That is still on track. I still expect that to happen. So stay-tuned. -- we should have an update quite soon on that. And then as I mentioned ,we're be focusing to get this upfront payment being much more selective requiring customers to pay for collaboration and/or share in some of the development costs going forward. So that's about it. Obviously, this is a very key focus for me right now, and I expect to have a further update in April on this. Next slide, Slide 8, on the technology. As I mentioned, this is a very unique differentiated technology. Arvind our CTO recently presented data, the first time we've actually published and made public any of our data on the batteries that actually work and have unique specs, including more than double the energy density of lithium ion. This is highly differentiated. It's the first high VED, which is volumetric energy density, which is what matters for things like wearables and hearables airpods, hearing aids, wearable various different wearables. What matters is volumetric energy so, how big is it? And this is the first high polymetric energy density, solid-state lithium micro battery. The first one with as I said, double or more than double in some cases, energy density compared to lithium ion. This is very unique, and we're making significant progress with all other specs such as cycling capacity, et cetera. And then on the manufacturing side. So this is our manufacturing process here. summarize for you. We are working now on the scale-up. So further level of detail, which we're not going in, in this slide, there's a few things that are being tweaked to enable us to get to the higher capacities needed for production. There's still things there that have been worked out, but still on track and happy to answer any questions if you have any questions on this. And then finally, the market. You've probably seen this slide before. But just to remind you, a great technology. We're working on the scale up, and it's a huge growing market. We think it's over a $10 billion market. So we're quite excited about the opportunities ahead, and I think we've made a lot of progress in the last few weeks. Solo, that's it from my presentation. So I'd like to hand back to you for questions.

Yes. Thanks, Mark. Yes, we have got some questions here. Actually, we have got questions on e-mail, the days before the presentation, and we get some in the live chat. So I take some questions from the live chat first. So Mark, it's a question for you here. When will you be based in San Jose or how will you spend your time in San Jose, I guess, sort of going forward?

I'm a split between San Jose and Asia at the moment. So is there for just over a week last week, and I'm going back again on the 20th, so I'm probably going to be half and half, 50-50 for now, working with the team. That's the current plan.

And will you continue as a Board member when a new Ampere CEO has been hired?

That's the plan, yes. I'm not going anywhere. So I'm staying in this seat until we have smooth transition plan in place. And then I've committed to stay on the board once the transition plans in place, yes.

So about the order we announced before Christmas. When are you going into production with order? You said something now about what's going on with that, and we are on plan. But sort of when are you going into production?

Yes. So the plan for production is we should start production within Q2. It's going to be the later part of Q2. And I believe we're on target for that. So for production. And the preproduction samples will be early Q2, which means the -- essentially the same product that we're going to produce samples we have to give to this customer before they finalize and agree and qualify everything, that's due early part of Q2 production to start later part of Q2.

And so what kind of yield do you sort of expect to get on this order and on the longer term in the current manufacturing facility.

Well, this type of products, batteries and semiconductors because it's kind of a blend of both given the manufacturing process. We should expect 90% yield. Once we're in high-volume manufacturing, I would expect for the first order, we won't be at that level, will be quite a bit lower than that I would expect. I would think if we can hit 80%, I'll be quite happy. But longer term, we should get to 90% or over.

Okay. And then sorry to the audience here that I have to read -- look through these incoming questions there. The question here, and I've got this question many times as well. The strategic partners, when will we have the names on this? And can you elaborate on why we are not able to tell the names, at least in the past, we'll see what's going happen in the future, but in the past.

We're not able to mention the names because these partners won't allow us to mention their names. I would love to mention the name. And then we've asked them many times to be able to manage their names. But so far, they have refused. And actually, these types of customers, if you know who they are, that is actually a very common practice -- even with a very large supplier, they will not allow in these cases, we are talking about these big strategic partners, they very, very rarely and in many cases, some of these partners never will announce or allow their suppliers to announce that they're working with them. So it's nothing -- that's not anything strange at all. That's very normal for these customers. Some of the smaller customers that might want a bit of PR could be different. So we may be able to mention some of the names, but the big strategic partners highly unlikely will ever be able to mention their name until you see it in their product. And it will be obvious at that time. But until then, it's the case with many products in mass production now. It's still -- some of these customers never aren't -- they never announced who their suppliers are. They never allow their supplier to announce who their customers are, but people figure it out eventually. It's just we can't announce it.

I think to add on that, one of the strategic partners has said to us that, of course, they want this battery to be a really big competitive advantage, so they don't want the name out there who they're working with. So that's just an add-on for me here. But yes, that's right. It's another question here because we have talked about the grants, Mark, in the previous presentation. And there's a lot of buzz about this in Norway right now because sort of battery manufacturers in Norway are moving to states because they are able to get grants from the biding government. Are we getting some help to look for grants or apply for grants? Or are we doing it on our own.

I mean we're now -- unfortunately, we -- up until this last month, we haven't really done anything in grants. We're now actually starting to look, and I think there are a number of opportunities with the chip [ stacks ] and various other potential U.S.-related grants. So we're looking at those at the moment, and I think there's definitely some potential there.

Another question here. When will we be able to see the packaged battery sort of when will the investors be able to see the packaged battery working? When will we be able to launch that or show that on the home page.

Yes, it's a good question. I think what we'll do in the next month maybe in April. I don't want to promise the time, maybe April or May. We can do some demo either video or something to show you the battery working. We could do that. We'll work on that. Obviously, we're working on the scale-up and the preproduction samples right now. But as soon as we can get a valuation board put together, which is like a demonstration Board to demonstrate the battery working where you can actually see it working, turning on a light or something like that. We'll make that. So I would say probably about a month or so, something like that we can get that done.

And then what is the production capacity and the revenue potential in the pilot line for the current production line?

Well, you see... That depends on what equipment you've got in there. With the equipment we've got right now, the volume -- we have to do a number of increases by new equipment to get to the kind of 10 million to 20 million unit kind of volume, which we've talked about in the past. I think Kevin and others may have talked about in the past 10 million to 20 million a year unit. We can get to that in this site. No problem, but we need to buy more equipment. So right now, with the equipment we've got, it's going to be quite a bit lower than that. But the other variability there is the scale up process. So there's a number of steps where with tweaks, you increase the capacity of any given step by 10x. And that's by changing the process. I won't go into technical details, but we're using tools that are similar to semiconductor manufacturing process and different tools have different throughput. And by changing some of those steps, we increased the capacity dramatically, and that's what we're working on right now. So it's difficult to say what our capacity is right now, but we can definitely get within this site, $10 million, $20 million a year with some more equipment. So that's 10 million to 20 million units, which is like $100 million to $200 million revenue kind of range, something like that.

Yes. And I guess another question there is that sort of given the current pilot line, how many customers can you push into that? I mean we're talking to a number of customers now, how many of them can you put into that -- the current line?

Yes. I mean some of these customers are tiny and some of these customers are -- we would need like 100 of these. So that's a very difficult question, to answer because one of the customers we would not be even in our entire site, maxed out, we would not be enough. But a lot of the customers that are smaller, you can get several of them in here, including our preproduction -- sorry, including our first -- I should say, our first production customer that we announced in December. -- we can get a few other smaller customers in there, but not the really big ones. But the big ones tend to take a bit longer anyway. So we have time with them.

How -- let me see, there's a question here from audience. We are talking about the exit strategy. And that's -- I guess that's more part of the sort of the total financing, financial structure, and we have talked about exit. Could you elaborate a little bit more on that sort of what we are saying about the exit strategy?

I mean -- exit, I mean just potential acquisition, perhaps or partnership, that's what I mean by that. So although the Norwegian entity is listed, the U.S. entity, which is basically the entire value of the company is in U.S. is not listed. So we can -- listing that as a potential exit or having being acquired is another potential exit. So I think given where the market price is right now, it's an absolute bargain. But I think there's potential to get much higher price than this, of course, because of the price is way, way low at the moment. But strategic partners exit that could be a potential for us. So through acquisition, for example. It doesn't have to be acquisition. I think there could be other things we can explore such as joint ventures with some well-funded strategic partners as well. And that's a kind of exit, although not really exit, but it would fund us in exchange for equity perhaps. So we're exploring, as I mentioned, on the fundraising slide, we're exploring a number of options. It's quite early stage, though. So I can't really talk too much details on those.

And then this is many questions there around if you have met us investors and has the capital raise for the U.S. Inc. started in the U.S. and are used or involved.

So the question is, has the process in U.S. Inc. started?

Yes, the fundraise.

Yes. It's -- I mean it started. It's very early. We've met the financial advisers, and I've met a few investors. So yes, it started, and I'm involved, absolutely, but it's still early days.

Let me see here. So -- you are the interim CEO, you have touched upon this before, but you are an interim CEO. So what is the time line? When do you expect to hire a new CEO and you have talked about 4 people. So that's fine. But what do you see sort of timeline here?

Well, I'd like to, in the next couple of months have the actual detailed transition plan in place. So whether the CEO is in place in 2 months or not, I'm not entirely sure yet, but at least we'll have a transition plan, we'll name that person, and we will have that all laid out. I would like to do that within the next 2 months from now. That's at least my goal.

Good. There's a question here, sort of when can we expect to see you here in Norway?

I mean I don't have any current plans, but I'm happy to come visit at some point. Obviously, at the moment, a little bit more focus on spending time where the activities are, which is in San Jose, California. So more of my focus is on that. And I think we may have some kind of opportunity to meet either Norway or perhaps in San Jose in the coming months as well.

Yes. To the audience, we are thinking about inviting the shareholders that has the desire to see the factory and the team -- meet the team in San Jose. So we are planning on that. So we'll get back to you in due course. It shouldn't be that long. Could you say something about the mix between strategic partners and smaller customers, what's the focus within the company sort of on the mix between these 2? Because it's 2 totally different sort of tracks, I would say.

Yes. I mean, sometimes the strategic partner is a bit too big and sometimes some of the customers are a bit small. So we're looking at both of them. Both of them have a huge potential for us. And yes, of course, the strategic partners are game changers because those could have volumes that are again, it's like far larger than we can possibly do in our facility. So the absolute game changer for this company. So we have to pursue them because the opportunity is huge. I think will be forced not to pursue them. And because these companies are generally quite rich companies, they are more likely the larger companies, at least, which the strategic partners are all large and they're some of the customers also large as well. They're much more likely to be paying upfront for development or samples or things like that. Customers -- some of the customers, particularly the smaller customers, they're much faster moving. So we need a mix of both of these, I think. What we've got with our first production order is a fast-moving, relatively small medical wearable company that has making the -- taking the first move with the production order, and we wouldn't have that with a large company because large companies generally are slower, and they don't take risks on a small company like us. They want to check things much more rigorously. And so it takes a lot more time to qualify the battery into those companies. So we need both. We need to balance both at the moment.

Sort of -- we have the battery, and we have the battery cells and in the traditional sort of -- as we heard a lot about the Norway, the EV manufacturers, they're always talking of battery cells. But then we are also talking about the finished battery. So what do you think -- what's the potential for the battery cells alone compared to a battery? Do you understand me?

You mean the unit sales on.

The unit sales. How could a company -- I'm trying to rephrase the question from the audience here. How could the company pursue both marketing and selling the unit sales and the battery? As well.

So most customers want the stacked battery, the fully packaged stacked battery because that is a working battery that they can put in various devices. The units that are 1 layer, there is potential. There are some applications where units sell single layer actually could apply that we're looking into. And there are also some customers that may want to do the stacking of the cells themselves. But so far, the great majority, the huge majority want the fully stacked battery. That's what we've found so far. But there are opportunities for the unit sell as well that we are looking at.

Yes. The questions coming in here are sort of overlapping quite a bit, but let me see here. We said something about the team, which is in San Jose. And one question here. I guess it's a little bit repeating what you said, but you can maybe elaborate on that a little bit. How is the spirit in the organization?

Yes. I think it's good now. I really do. I think that there was a lot of nerves a couple of weeks ago, including what I first got there, which is -- which was a couple of weeks ago. And A lot nervous because they knew that we're trying to cut costs by at least 20% or they're targeting 30%. And so you can imagine people were quite nervous about that. But we -- I spent time there and got to know everybody met with everyone face-to-face, and we had to do those actions, HR actions. So we've done those. And now I do think everyone's well engaged and happy because they believe that well, first of all, that stuff still got a job. And they believe that what we've done was done -- what we did was we were very careful not to impact key activities, meaning technology development and the manufacturing operations, particularly the scale-up activities that are happening right now, which is kind of both of those teams. So those teams were relatively unaffected. And so -- and those are the key teams that are basically what we're all relying on right now to execute for us. So I think now afterwards, we had a big -- I held a big meeting, an all-hands meeting on last Friday with the team. Just to let them know that we've done a few A actions and now we're done. And we're also -- we've got some new equity incentives. We're offering some of the employees. And I think everyone is happy everyone's super engaged to make this thing happen. I think the opportunity, people that are there at this company, they know the opportunity is huge. They can see this technology is really amazing, unique technology, and they can see that production is not that far away. They're within grasp of it. They're still, as I mentioned, there's still challenges to get over technical challenges related to the scaling up of the product, but they can see it's within their grasps now. And once that hits production, -- it's going to be a game changer for the industry. And as I mentioned before, we've hardly done any outreach sales and marketing and the inbound is tremendous. And once we're in production, and we can start reaching out, then I think the market is ripe for us to actually get some huge orders here. So people see that and super excited, I think, right now.

Yes, there's a question here. You have a history from working in Samsung, Mark. Any opportunities for Ensurge in the Samsung family.

Possibly. Obviously, I'm still in touch with my people I worked with in Samsung. So it could be some potential there. I can't say any more than that. But yes, they absolutely could be, yes. Samsung is a huge company or group. It's not even the company. It's a group of companies. You have a battery company, you have -- you have some electronics, which is control electronics potential customer. So you have lots of different parts of the group. And yes, I think there is definitely a potential to do something with them.

Okay. I think we ended here because the questions are sort of circling among what we already have communicated. So could you sort of maybe have some closing remarks, Mark, before we end the session?

Okay. Well, thanks, everyone. Thanks, Don, for the Q&A, and thanks, everyone, for joining. As I mentioned, we will have another update in April. And we're also working on having some kind of visits or Investor Day, we get the chance to meet the rest of the team and see the battery. And if we do it in San Jose sensitively, we've not confirmed we can do that. But if we do it there, then you can obviously get a tour of the factory as well. So we're looking at those opportunities as well in the coming couple of months. So -- and I look forward to meeting some of you there.

And from my side to the audience, if you are -- had questions which you haven't been sort of feel that you have gotten a good enough answer, you could send an e-mail to me, and I will try to sort of answer questions over the weekend to an e-mail. You don't need to send them to the Mark because he is too -- talking to customers right now. So but just send them to me, and I will stay in touch with you guys. So thank you, and have a nice day. Thanks, everyone.