Ensurge Micropower ASA (ENSU) Earnings Call Transcript & Summary

Welcome to this presentation from Ensurge Micropower. Thank you for attending. Together with me today, I have with me Chairman from Ensurge Micropower, Terje Rogne. We will start with a brief update from the company and our investor presentation, and then we will have a Q&A session. [Operator Instructions] Thank you very much, Terje, and welcome.

Thank you. Thank you for this opportunity to give a company update for the company. It's been a hectic period. So I'm happy, very happy to have this opportunity. Thank you. So in the presentation, that will take about 15 minutes, short presentation, I will address the market, the market opportunity, the problem that we are addressing. I will also talk about the production process, the manufacturing process; where we are in the manufacturing process? What it takes to complete the first set of batteries for us to send to partners and technology customers? I'll also talk about the road ahead, the technology road map. So when you look at today's market opportunity, you see that all electronic devices are constantly being shrink. It's being miniaturized for a number of reasons: mobility, ease-of-use, whatever reason. You see also, at the same time that all electronic devices are being ask to do more and more. You wanted to deal with artificial intelligence. You wanted to deal with security. No one wants your electronic device to be the point of access for hackers into your private network or your enterprise network. So these are the bad combo for today's liquid lithium battery technology. Battery technology that has been with us for 100 years, very little room for further improvement in that technology. So that is existing technology, electronic devices. Looking at new electronic devices, it follows the same pattern. It becomes smaller and more compact. Looking at the Samsung Galaxy Ring, iFixit had a short period ago, a tier down of that, beautifully mastered engineered product, has all the functionality. But there's one problem, and that is the battery. That battery can be charged 150, 200 times. That makes the lifetime for this battery to -- equal to 2, 3 years. The fact that you cannot change the battery, makes that lifespan for this electronic device to be equal to the battery's lifetime, and that's sort of causing an e-waste and its lack of customer satisfaction. So the battery is clearly the bottleneck as we see new electronic devices also coming into the market. Last week, one of the best placed IoT companies in the world, Nordic Semiconductor had their Capital Markets Day. In their power management efforts, they talked about new battery technology. And yes, looking at the entire IoT landscape, the battery technology is the bottleneck number one. So no wonder that you see a surge -- a massive surge in interest for new battery technology. Lately, you have had Murata, TDK, now Samsung and many others, talking about their sort of intentions when it comes to new battery technology. Different to them, our battery technology is based on a different substrate. We're not using glass or ceramics. We're using stainless steel. Ensurge has been dealing with stainless steel, roll-to-roll for more than 15 years. So we know that materials' properties better than anyone. The beauty with stainless steel, roll-to-roll thin silver foil is that it's much more compact. That allows for a much, much higher energy density. So when new and existing technology is looking for new battery technology, what is it that it requires? It definitely requires more energy, higher energy density, a longer time between each charge. You're looking for better charging, faster charging, more charging cycles. You're looking for a higher effect rate, pulse rate and you're looking for safety. Some of our customers, new customers, med tech companies, they are very eager to get their hands around new battery technology. They want new battery technology to energize all their new sort of IDs. Devices they want into your eye, into your mouth, into your ear, inside your body. That fits very poorly with today's battery technology. Battery technology that if it leaks, it itches, it burns, it may even explode. So obviously, that does not run well with the FDA for such innovation. So yes, looking at this competitive landscape and the opportunity, we are extremely sort of eager and excited enthusiastic about where we are. Let me take you through the manufacturing process and where we are and what we're aiming for. So this thin stainless steel substrate comes in rolls. And the idea for us, we split the manufacturing process in 2 major parts: the front-end and the back-end. Our idea and our target and our clear mission is to have the entire front-end from roll to roll. So comes on rolls that we deposit the battery layer, and we will pattern the battery according to the size, the footprint that each battery is to have. And then we test and inspect it, all that, we aim for a roll to roll manufacturing process. We're not there yet. Today, yes, it comes on a roll, and we print the battery but then we quickly moved to sheets and then to quads. Moving from roll to roll. So when we talk about our scaling efforts over the next 12 months, this is primarily it. This will dramatically improve our capacity and it will reduce the number of manual handling steps, the source for errors. So that's the front-end. The second leg is the back end. Here, today, as each cell has been inspected, then we singulate it, we pick it, and then we stack it and then we encapsulate it. That's where we are today. In February this year, after more than 4 years of tough, hard diligent efforts to prove that we could develop a single battery cell with the performance, the profile in its performance that our technology recipe outlined, in February of this year, we had a breakthrough there. We proved that, yes, it is possible. Since February, we've been working very disciplined, ironing out all the opportunities for errors, streamlining, optimizing each and every sub process of the manufacturing process all the way now up to encapsulation. So that's where we are. What we're dealing with now is to find the optimal composition of the material that is wrapping this stacked battery. That is to contain the energy so that we can charge, use the battery and charge. So the number of charging cycles are being defined by the quality of this composition. And then -- we also want to apply a certain level of pressure on the battery because once you charge, it expands and once you sort of deplete the battery, it shrinks, that is causing a stress to the encapsulation material. So this is the final step in our manufacturing process. What this will allow us once this is in place and it has to be complete in place. It needs to be 100%. We cannot afford to cheat. We have to be absolutely sure that once we are sort of satisfied and we have confirmed that now the battery has the number of charging cycles, the performance that allows us to start shipping these batteries to customers and technology partners, we know that it's not sort of being met with disappointment. We wanted to be sort of creating a wow. This is new. This is exactly what we are looking for. We want that. And that type of experience, that type of happening is where we are sort of now at the point to enter. So this is sort of the manufacturing process where we are. Let me also take you to where we're going. So we're looking now as we're speaking, we're looking at releasing solid-state batteries with energy density level. This is measured according to watt hours per liter. So we're looking at releasing batteries with 650 to 750 watt hours per liter. That compares to today's lead iron, lead polymer batteries of 150 watt hours per liter. So it's a dramatic leap forward. As a matter of fact, we think that if you manage to move beyond 350, 400-watt hours per liter, you're making such a compelling reason for existing device manufacturers to change. So by 650, 750, we're creating a fantastic start for our journey, our commercial journey. We will, over the years, also increase the number of charging cycles. I mentioned the battery that is currently being employed used in the rings, 150, 200x. The battery in itself in theory should be able to be charged up towards 3000x. Obviously, we will not get there day 1. That will take time. But with our sort of current outlook, we are very happy to see that we're close to be able to release our first-generation batteries with this type of performance. It will make a splash given that tension, the amount of recognition and the bus. It will make a splash. Now -- that's just the very beginning. That's Generation 1 in terms of our battery technology. So moving forward, we will increase the number of charging cycles and we will increase -- dramatically increase the energy density level. We're looking at an energy density level of way north of 1,200 watt hours per liter. So yes, we definitely do have a fantastic opportunity in a market that is close to exploding. It's a market that is defined today by lack of this type of battery technology. So I want to leave it at that for now. I'm sure through all the questions that I understand has started to come, that I will be able to dive deeper into some of these slides. So I'll leave it for that now. Yes.

Thank you very much, Terje. And for those of you that have not read the Accelerate Capital's report, it's on your web page under Analyst Coverage. And yes, we have received several questions. One question that I've been repeating itself is, of course, when can we expect revenues in form of own production or development agreements or license agreements? If you can comment on that.

Obviously, we don't know. But here's what we know, and that is that we're now close to more -- close to 100 customers, eagerly waiting for our technology. We haven't spent $1 on sales, marketing. It's purely word of mouth. So there's a humongous amount of interest in what we're doing. But they are all just like the investors sitting on the fence, waiting for our confirmation that not only have we mastered the technology that we approved in February this year, but that will also have mastered the manufacturing process. So as I said, we cannot allow ourselves to cheat. We have to be absolutely confident that this meets the expectations or exceeds the expectations before we start shipping batteries. We know that we're going to get this final step in place, but the timing of it is hard to sort of state. No one has done this before. It's brand new. So we need to have the necessary discipline and sorry to say, also the necessary patience. We know that we're close. We have said that before, and we know and looking at sort of the enthusiasm and the eagerness of the people doing this work. We know that we're close.

And in relation to the slide you just showed up on the presentation here in the -- regarding energy density. And there's a question in regards to the efficiency. So does the increased energy density also scale up to larger batteries form? Or...

I understand the question. So when you surpass 1,000, 1,200 watt hours per liter, you're talking such an extreme capacity that then you are covering the greater part of the entire electronics market. Beyond that, that requires a different type of battery technology. Yes, you do have solid-state battery technology aimed for the EV market. But that is different cathode technology and it's a different technology structure as well. So that's not within our reach. We're looking at for now, the IoT, the space constrained market, that's number one. Let me pull out one slide for that. So this is our target market for now, smart label, smart card, connected sensors, medical devices, wearables, hearables, that's sort of the sweet spot for now. But yes, we will move beyond that with higher energy density, watch phone, premium drone, but EV, that's not for us. That's a different ball game.

Thank you. And a question that has also been repeating itself a little bit, it's regarding yield. And in the report from Accelerate, there are some comments, of course, regarding production yield and what is the yield on produced sales inputs? And how good are you to call it -- do not continue with the bad cells before they go into production, if you can...

So here, you see singulation and then it's stacking. If you stack one cell that is a bad cell, the entire battery is done. Now I've read that report, and it is a report that reflects and experience related to the EV market. As I've stated, no one has done what we're doing. So there is no kind of history here. No one -- no prior history to base the analysis or the report on. What they're saying is quite right, but not for now. Yield will become important. Right now, what is more important for us is to be able to identify here. which cells are working, which are not, and then isolate those. So it's -- we know that it's not -- we know that there are certain errors in each quad, each sheet that are not optimal. So being able to identify those dramatically sort of reduces the failure. And what we're left with then, represents an extremely high yield for us. So rather than yield, our focus is our ability to pick out, to predict which cells. So it's not like we're operating in being blind. We know we can see, we can isolate, we can test out the bad cells and that allows us, yes. As this matures, as cost becomes important, then, of course, yield becomes an issue, but not for now. Does that make sense to you?

Yes. And in regards to the report from Accelerate Capital, there are some questions -- more technical questions regarding different layers. I just have to translate from Norwegian. But in the report, it says that Ensurge first will finish 11 layers and then 28 and lastly, 43. And the reason for this is that the yield should be above 98% per unit of each cell in order to produce 43 layers. And then can you comment a little bit if you will launch 11 layers or 28 layers' batteries earlier than 43 layers like...

Most likely. So we do have customers waiting for 11-layer. And we have customers waiting for even smaller batteries. So when I started in April, 2023, it was very important to me that we could rally all attention among all employees on 1 target, being laser focused and that was the customer that has placed the order for us. That requires a battery that has -- there are 2 alternatives there, either on battery with 43 layers or 2 battery with 28 players. So yes, the opportunity for us is much greater. But our development efforts has been laser-focused on this 43-layer battery. It's a numbers' game basically. So the more batteries that you have being able to test the encapsulation, the better and the faster we will sort of fix the final step. So that's the reason why we are stacking now 5 layers, 11 layers and some 28. But we don't want 43 layers because it's much different. We want more batteries with the same sort of properties so that we can test our way through the final step encapsulation. That's the logic for the order. Yes.

Good. And I have 1 question. You mentioned the Nordic Semiconductor earlier and Samsung, they chose Nordics -- in the new health ring, they have the 54 chip of Nordic that can run 56 MSUs on the same time and have a decent batteries. And the question is, will the need for Ensurge batteries become less in this application or -- in regards if you compare to this application or more? If you can help us understand this.

It's -- I believe it's actually the 53 chipset that is inside the Galaxy Ring. And yes, it's a powerful, very energy-efficient chipset. But it's constantly being challenged to execute on more operations. So there is a never-ever-ending story that you provide more capacity and you're asking for more. So this fight is constant. What you know is that for user interface, for performance-wise, you constantly need more energy to drive this. That's the only thing you know. Yes, you can compensate to a certain degree with more efficient chipsets and power management solutions, but you want develop yourself out of this relentless lack of energy and that need constantly grows.

And several other questions that are coming in is, of course, regarding timing of commercialization that we have been into. But you have an -- I believe you have one or -- can you deliver on the orders when you get them going forward? Because 1 question is, when can you deliver on the order you have for 150,000 batteries? And what kind of volume do we talk about for the first generation batteries ready in 2025?

So towards year-end 2025, the plan for us is to be able to deliver about 200,000 batteries equal to the 150,000 battery order per month. So 200,000 per month. But if I look at the entire customer portfolio as of today, I see that there is much more demand there than we will ever be able to manufacture and deliver on ourselves. That's not the game plan. In our own manufacturing facility, what we want to do is to take care of the most difficult customers. Customers with an extreme demand customers that are willing to pay premium price. Why? Because we want to stretch our own know-how, our own competence. And the only way to do so, that's through difficult customer demand. Our idea is that, okay, we will expand our current or our single-line manufacturing capacity that we have in place as of now. We may go to 2, we may even go to 3, but we will never ever become a manufacturing entity. That's a totally different business model. So our own manufacturing capacity being -- will be devoted to difficult customers that are willing to pay premium pricing. It's going to be devoted to development agreements, joint development agreements. I mentioned med tech companies. As I said, they are very eager to get their hands on new battery technology, being able to design batteries with specific -- specifications and performance according to their needs. That's something that, obviously, we will charge for, $1 million, $5 million, $10 million for joint development agreements. And that's most likely coming sooner than the third sort of leg in our commercial strategy, licensing agreements. So the joint development agreements, that's much sort of closer to us. While licensing agreements, that requires a certain level of regularity and consistency in our front-end and back-end manufacturing process. But yes, we've spent more than $350 million to get to where we are. Obviously, we want to pay back on that. And with this unique battery technology, extreme energy density, a effect rate, you're talking 10 -- 12.5 C rate, a C rate of that magnitude, combined with the energy density that we're talking, that's unheard of. So how do we allow this type of technology to become available to the broader market, to all the verticals, to all the geographies, where we're not -- we will never ever have the capacity to reach. That's through licensing agreements. So yes, we are running discussions with technology partners for future licensing agreements. But obviously, they want to see the regularity and the consistency in our manufacturing process before we enter into that.

I think that answered a lot of questions that have been coming in. Yes, because you recently did a private placement in the company. And some questions have also been regarding to additional capital need over the next 6 to 12 months. But I mean that actually probably depends on the licensing agreements or...

Yes, joint development agreements. I am personally thinking is closer in time to alleviate any sort of need for further capital raise.

Yes. Thank you. Good. And just to mention to the viewers. If you have questions, please feel free to write them in the chat. We have some more, call it, technical questions like will the 11-layer battery be made on 75 um, like stated in the Accelerate Capital's report. or 10 um, like the other batteries?

It will be 10 micron. Yes, we do also have customers for 75 microns, but that is not of strategic interest. It was a middle step for our manufacturing process, our learning curve. So it will be 10 micron.

Yes. And in regards to the question prior to that, for the potential licensing partners. Are they mainly waiting or evaluating the packaging solution? Or is it the yield? Or what are they...

Entire from the very beginning -- from beginning in the front end to the end in the back end, so it's the entire manufacturing process that needs to sort of be consistent and have the scalability.

And do you think that Ensurge are able to stand up to the larger players within -- I mean, competitors that are in the same markets?

I am absolutely convinced. The single most important reason for me to take on this task in April 2023 was the opportunity to meet the team, the competence, the enthusiasm, the work ethics. And when you enter that building now compared to just when I started -- when I started, it was 1 shift, 5 days a week. Now we're running 7 days a week, 2 shifts, and we bring on board people now to increase that to 3 shifts, 7 days a week. So the competence, the speed, the velocity, the work ethics of this team is second to none. And remember, finding these, yes, some of them larger, but they just happen to be employed by a larger company. It's still a team that we are competing with. They are struggling internally to access all the resources that our team had 100% devotion to -- remember that the specialist will always run faster, jump higher than the generalist. So yes, I'm absolutely convinced and I will vote for my team day in, day out.

Good. Thank you. I think we have -- I mean some of the questions they are -- I think they have been answered. You can -- maybe a little bit regarding the yield again. If you see on the latest report, the quarterly report, there was a breakthrough in the yield that was described in the report. And if you can -- I think it was really -- it was released in August. And what is the status now? You can say a little bit of..

It's part of the manufacturing process that allows us to skip 2 intermediary handlings. And that has been the continuous sort of development of this -- streamlining this entire manufacturing process to sort of jump over to reduce the number of handling steps has been very important to us. So rather than just fix the issue, we have had to fix the issue but in the most scalable, friendly manner. And this is something that came up through this process, a brilliant idea that, yes, we are seeking a patent for that.

And can you also comment on the incubation services that you intend to offer.

Yes. So in the valley, there's -- there are some players that are expanding. They are occupying, very engaged within the field of artificial intelligence. They're occupying all the buildings, all sort of similar type of facilities in the valley. So our lease contract that runs until October 2028 is in high demand. So we have now run the first test run, allowing us to invoice that 20,000 pre-agreed contract for this service. So we've completed the first run-through through our roll-to-roll manufacturing process, demonstrating the capacity of our manufacturing facility for 1 customer. Two other customers are now coming. And that's the basis what we think for a larger audience within our building. We have more space than we need. We have more manufacturing capacity in certain areas than we need. So being able to sublease that is 1 way for us. Yes, it will reduce the running cost. But more importantly, we want to do this together with companies that are similar, that work within sort of similar fields. We want this battery technology incubation system, this atmosphere to be supported through this sublease agreements. So yes, the first is in place, and we're starting to invoice for those services and it looks fairly good for the 2 others. So yes, we'll take it from there.

Yes. Thank you. And as I mentioned, many of the questions are, of course, regarding timing and when. But one question is more specific, is -- when you have solved the encapsulation step and you're ready to manufacture. How much time do you estimate it will take for customers to evaluate the final battery before the...

That's where I think we will announce each and every shipment to different customers, not for the financial community. But we want to demonstrate to all these customers and technology partners that we have solved the final step. We want to create this competitive situation, this competitive understanding. That is time -- if you want access to this battery technology, this is not like red one. You're in a hurry because we do have limited capacity to undertake specific needs for each customer. So we want to create this competitive atmosphere. And that to me, sort of is the guarantee that once we start to ship, that will quickly turn from a sort of, yes, this is interesting to ship, we need to get our act together and move.

And regarding costs in the company, are you seeking more people in management or in the production facilities near term? Or are you good as it stands?

Near term, as I said, we are now running 2 shifts, 7 days a week. We need a few more employees, then that will bring us up to 40 in total. That will allow us to run, yes, as I said, 3 shifts, 7 days a week. Beyond that, it's just incremental certain capacities that we will add for now. But in the longer run, for this to become the battery technology incubator running a manufacturing process for a defined number of customers, difficult demanding customers, undertake joint development agreements and to support service royalty agreements. We're envisioning a total of 55 to 60 employees, all in all. So that's the game plan.

And you now mentioned development agreements also -- time frame for such agreements? Is 2024 realistic? Or should we look into 2025?

I believe that we are approaching too quickly the end of 2024 to get that in place. So that's -- yes. Yes.

And the design-in processes for the devices, they tend to be longer processes when looking at key products in the past. But can your batteries drop straight into existing design of...

Yes, it is. That's also -- I've tried to sort of not go too far down into the level of details there. But the fact that you can surface mount our batteries in a regular cleaning room, it's a very easy mountable battery technology. That allows it to sort of quickly once the customer comfortable with the functionality and the quality of the battery. It's a fairly sort of quick and easy way of, yes, integrating this battery technology into your current battery or -- into your current electronic device.

Good. Yes, I think we have been on most of the topics. Some have asked about the trading halt that was in the share just prior to the prior placement, we also did. But you can just maybe comment on that if there are any new -- I mean...

There's nothing new there. It is what it is. We did what we had to do. Didn't like what we saw. So we acted.

We acted and I believe the also Stock Exchange are looking into...

They are.

Yes. It's solved.

For us, it's water under the bridge.

Yes. And then I think we can take 1 last question. Are you -- did you see any possibilities? Or are you seeking any government grants in the U.S. or...

Yes, we are. That's a good question. When I started, we were realistically looking at grant support mechanisms in the magnitude of tens of thousands of dollars. We've been now in the range of $100,000 -- moving towards this type of battery technology and upwards, suddenly, we engage with much larger players, material suppliers that will give us the necessary credibility to tap into the larger million-dollar grant opportunities. So that's kind of the road map for our grant and support mechanisms.

And then I think the last question, we have been on this topic, but many investors are, of course, waiting for the news regarding the start of large-scale production. But if you can comment a little bit about the pipeline, what do you -- it said anything the investors are overseeing if they can expect maybe joint development agreements or agreements regarding future license productions or expansion of production facilities, et cetera? Is there any other news you think could be highly relevant on that topic?

Of course, when you look at this entire sort of market and the market opportunity, I talked about the IoT, the competitors making their -- stating their intentions. It is a market that is kind of attracting more and more attention. And that's very attractive to us because that makes it much easier to make the splash announcing. Now we are manufacturing in a consistent manner, and we're shipping these type of batteries. That will bring about a lot of new things that -- we know but it would be too speculative to start talking about it.

Yes, I understand. Well, I think that sums it up. And thank you very much, Terje, for a great Q&A session and a great presentation. As I mentioned earlier, I would recommend to look at the Accelerate Capital report. That is on your web page on the analyst coverage. If you have any questions, please feel free to reach out to Arctic or the company. And thank you very much.

Thank you. Thank you all. It's been a pleasure. Thank you.