Ensurge Micropower ASA (ENSU) Earnings Call Transcript & Summary

Welcome to this Q1 presentation of Ensurge Micropower. Today, we have with us Chairman of the Board, Terje Rogne, and we have with us CEO, Lars Eikeland. Thank you.

Okay. Welcome to this company update. This is actually the first quarterly company presentation. And it marks a new era for this company after six very heavy, tough ruling R&D efforts, strong testing period, moving very sturdy towards where we are and having spent some $400 million financed through equity by our shareholders and we notice to that. Not a single penny from public funding, different to most other battery technology adventures. We are now ready to bring our technology to customers to the market. So, starting -- bringing you back to February 2024. That was the first time we managed to have a well-functioning battery cell. Since that time, as I said, it's been a very disciplined progress towards April of this year, when we were able to stack encapsulate cycle up to a reasonable number of charging cycle, a battery that we were comfortable with, that we could demonstrate and leave at a customer premise. So when you saw the enthusiasm and the joy, the energy from our customer looking and playing with this battery then, yes, it's a confirmation that we are truly doing something game changing. So battery that has an extreme fast charging time. It's a battery that is safe, and it has a number of features and functionalities that you don't find in any other battery technology. We have steadily been improving yield and our capacity. Since that presentation demonstration, we've also seen a very solid activity increase from customers, from partners and internally driving our focus, not at the expense of, but in addition to continuous technology, product development. Now we're also putting much higher emphasis on the commercial side of our business. We want to capitalize on the investments that our shareholders and all the hard efforts that have been put into this over a period of six years. We're also seeing a new type of customers, MedTech customers. And it's almost like looking rather than looking into the mirror driving a car where you propose this battery technology to existing users or battery technology into the MedTech field where customers they are not allowed to bring their gadgets into the market due to lack limitations of current battery technology. So now being increasingly so part of MedTech industry and opening up for all these new electronic gadgets, that are either on you or inside you. That is very rewarding and enticing new dimension to our company. Yes, we have increased our focus now as we are ready with the 11-layer battery. So we are now increasing our focus on joint development agreements. In terms of strategic partnerships, Yes, we have a few partners that are increasingly so knocking on our door. And we have advanced quite considerably with particular one. We've stated what we want, where we are and what we're prepared to do. Now it's upto them, to continue. In the meantime, we are accelerating our joint development agreement activities with alternatives and other customers and potential partners. At the same time, we are accelerating our technology road map through these partnerships, both in terms of energy density and form factor. At the end of these customer relationships, it's naturally that this moves into some sort of a licensing royalty agreement because we will never be a large volume producer. And with this battery technology that will open up for high-volume IoT-related electronic gadgets it's natural for us to license out our IP and ensure that customers' preferred volume producer are able to apply our IP and produce according to the specifications. Our focus now is to continue to drive this battery technology towards higher layer batteries. First and foremost is our 28-layer battery and second to that a 43-layer battery. Those are the specified targeted type of standardized batteries that we are moving towards. In order to do so, we need to increase the number of battery cells. And we're doing so quite aggressively, and we are moving that into a new production line that allows us to do so. And towards the end of the year, in the second half, yes, we envision to start delivering on our first customer account, some 150,000 batteries. So that would be a quick summary of the process, progress and state forward. Lars? Do you want to take it into where are we in terms of technology and the capacity and the features?

Yes, I can do so. Thank you. Good afternoon, everybody. Good morning, wherever you are. I'm going to go through a couple of slides where we show a bit more details about what Terje summarized in the opening session. So one of the things that we have been talking about is the fast charging and also the post discharge. And we had an ambition to starting with an ambition that we should be twice as fast as the incumbent batteries. And in fact, throughout our sort of production, testing and everything, we are, in fact, more or less 5x as fast now. So we can charge the battery using 8 minutes to get it up to 80% and a fully charged battery at 24 minutes. Which is significantly 5x faster than incumbent batteries. So -- and then we have a 12.5C pulse discharge. We -- this specific customer said that we need -- we probably need 5C of pulse discharge. We think it's driving a 20 million per pulse, but it turned out that, in fact, it was requiring 50 milli-Amp. So our 4 milli-Amp battery could do that over 30 seconds, where we have 250 microsecond pulses going back and forth to measure blood oxygen for instance, we measure then 12.5C, which is quite unique, to be honest. In terms of commercial customers, we have a pipeline which has been steadily growing and sort of probably accelerating a bit after we did our demo, 120-plus. And you see it's a good mix of wearables, hearables, medical and IoT sensors and a bit of defense. The biggest one is medical in fact. So as Terje said in the opening, there's a lot of activity there. And it's quite exciting to listening to the customer to learn what they want to do and what they need the batteries for. It's mind-boggling to be honest, and things that can't be done with current battery technology. Out of that pipeline, we have currently 13 evaluation agreements, and that has been kept stable at 13 for quite some time now, because we have been concentrating on sort of getting the technology ready and so on.

Yes. So I think it's fair that opportunity to expand that is vast, it's just an internal limitation to our capacity to effectively deal with all these opportunities. And each one of these evaluation agreements, we want to make sure that it is a proper handover of the agreements that we have, the batteries that are to be delivered and that, that is followed up by a structured arrangement where so we bring this to the end product, the battery with a specific functionality, the specific design that our customer wants. And then that naturally moves into a volume production agreement with their preferred volume producer. So we want to sort of make sure that we get effective use of each opportunity and that we don't waste any time or resource on activities that does not lead up to a return on our investment. We want to capitalize, as I said, on our investment and where we are. Yes?

Yes. If I can cover this one. So this is our business model, and that stands as it is and has been sort of for a couple of years now. We are going to pursue a different -- three different ways to capitalize on our technology. We will do battery production, bespoke, we will do that ourselves in our in-house fab in California, Silicon Valley. That will be limited up to a certain amount of volume. And we will focus on the premium customers that will -- and premium applications that will sort of pay for the privileged almost of using our batteries. Then we will, as part of our development of Generation 2 and further generations, we may go into partnership with certain suppliers of material, and they will do part of that manufacturing themselves. And we will do this, say, the final assembly of the -- and stacking of the battery. And then -- we also have the licensing route that I talked about that when the volumes are so big and also will require probably a cost that we can't deal with, then we will license the battery technology, not only that, but also the battery manufacturing process IP that we have built up over the years. Right. Yes. So -- and this is a very -- in simple ways, our manufacturing process. We call it roll-to-roll manufacturing line, and we have the front-end where we start with a roll-to-roll stainless steel. We put on the cathode. We -- goes through a furnace, we put on the electrolyte. And then coming towards sort of where you see the patterning happens. That's where you do the customization. This is now for what we call flat stacked batteries, rectangular batteries. So -- and then it goes to test and inspection and then it goes into the back-end where you do quite a lot of sort of packing exercises and then you start stacking in final encapsulation and it goes on to the print board.

But this is probably where we've had the greatest change over the recent -- the last 6 to 8 weeks. So on April when we finally got our first 11- layer battery, proving that we could stack, encapsulate and cycle. What that gave us was the confidence to move on. By that time, we knew what works and what doesn't work. And what even more important than that, we knew what worked and why it worked and we knew what didn't work and why it didn't work. Having that type of knowledge, we had resolved what we saw as all manufacturing limitations allowing us to move from what we had, what you see now is where we want to be. What we had was a test batch-based front end with a lot of manual handling -- gave us the necessary flexibility to change rapidly, anything that didn't work. So by April, then knowing that we had full control that gave us the comfort to move our manufacturing now to a newer manufacturing line, higher precision where we can control things like the temperature, the moisture much better than what we could with the previous batch test line that we made use of. And when we now see the visual inspection of that, it's a different world, it's totally different type of uniformity and getting now also the test of these battery cells. We see that, that will provide the lift up in parameters like the yield or saying that we have north of 90% stack yield that will increase with this kind of uniformity, we see that it has a higher capacity. So the volume, energy, density will increase. And with that, we also know that it will dramatically improve the charging cycle capacity. So all of this is absolutely necessary. Together then with a dramatic volume expansion, maybe as much as 10x for battery cells. Just going from 11-layer battery to a 28-layer battery to have the same number of batteries to test and to create the necessary comfort for us, to start shipping these batteries to customers and partners, we need at least 3x as many battery cells and the same then going to 43-layers. So obviously, this is a very important step forward for us to bring this into a much more attractive and game-changing type of battery.

And if I could just add something there. When we are ramping up and introducing new machines, so we're doing, say, a roll-to-roll anneal furnace. That is, in fact, something we already have in our inventory of machines. So now we have decided, now we are ready to go for that. So this is not a big investment. The investment was made back in 2017 when we took over the [ a park ] of a lot of high-tech roll-to-roll equipment. So now we feel we are ready to start doing this.

Okay. So -- before we go into Q&A, let me try to summarize. And I want to draw a parallel what we're doing that's precisely the same thing that we did at Tandberg, that I had to be a part of and what Nordic Semiconductor have done. And that has been the core for theor success. That is a very steady grinding on the core technology platform, a technology platform that allowed Tandberg to build us down competitive efforts that allow them to build us into customer accounts and that were transformed into a financial excellence. The same thing takes place for Nordic Semiconductor. And that's what we're doing. We are very steadily building a powerful technology platform that will allow us to bring this out to customers and transform that to financial excellence. We know that we have an unique product. It has features, functionalities and qualities that existing battery technology cannot match. We know that we have the infrastructure to grow the current generation of batteries. And we have the infrastructure to pursue the technology road map that we have defined. The market obviously is big. Yes, you do have the existing market, existing market with existing battery technology. But we also have the future, the future market opportunity that this battery technology will pave the way for. Yes, we have spent more than actually closer to $400 million. The money is one thing, but it is that continuous learning process that has been taking place. I said the last 6 years -- over the last 6 years, it's been very focused on battery technology, but also the foundation for our competence and our knowledge than the previous history of this company, that was its legacy business with thin film and -- but it all were made possible on the same substrate that we're applying today, stainless steel. So knowing the characteristic of that substrate has allowed us to convert that into yes, I say, some of the first solid-state battery technologies being presented to the market and definitely so in the micro battery space. Being the first -- being in the front allows us to build up a very powerful extensive IP portfolio. We see, yes, there is competition. And typically, we see two different type of competitors. We see that we have the companies like ourselves that doesn't have much of a history in the battery space. We know them quite well. A lot of them are based in the same region, Americas that we are. But we also see existing battery technology companies applying what they know. And what they know is based on different substrates, ceramic substrate, and that has some limitations. Yes, they know their substrate and they are able to apply that into a solid-state battery. But it's a fragile substrate that cannot match stainless steel in terms of thickness or thinness, doesn't have any flexibility. So from a technology point of view, we know that the capacity of converting a stainless steel substrate into a solid-state battery is far superior to any ceramic substrate. So that's where I want to leave this presentation. And I welcome you all to raise questions and then take it from there. Yes.

Thank you very much, Terje, and thank you, Lars. And as Terje mentioned, if you have any questions, feel free to write them in the chat. So we have received a couple of questions. We can start with the first one. Following the private placement, you have indicated earlier that, that a strong balance sheet provides higher standing towards the potential partners. Have you seen this materializes?

Yes, definitely, it's an important aspect of any customer discussion and not being at sort of at the edge of any financial situation allows us to -- like what we've done now. We have one particular joint development opportunity. And that's a much, much larger company than ourselves. They have their internal things. They have their own internal agenda. But being a small company, we cannot afford to sort of be lured into their agenda. So we have part that. I basically said that, hey, this is it. This is what we can do. This is what we need, come back when you're ready. And then we are allowed to continue to work with alternatives. So yes, that has allowed us a bit flexibility, I would say.

And have you noticed any changes with your customers or decision-makers of your customers in regards to the increased trade tariffs?

To be honest, no, not yet. And the situation is quite unpredictable as well. So -- but we have -- obviously, we have looked into it. And on the supply side, so the import duties, we may have to pay on things that we are importing from abroad and a lot of the materials, the specific materials are coming from Europe, some from Asia, but also machinery that we are ordering. So we are kind of -- we expect that there will be an increase and could be upto 10% to 15%. But as I said, this is almost changing by the day as the countries are negotiating and dropping tariffs. And yes, but we keep on it, and we also see where we can maybe shift to an American supplier if they are available. But we have a long-term relationship with our suppliers, and this is specialized equipment, specialized materials. So you're not hundreds to choose from.

In regards to potential sales, I regard that it's an advantage, of course, to be.

Yes. And you can say most of our customers, if you look at our pipeline, 60% are Americans. So that's an advantage.

Very good. Yes. How many batteries are you producing now? And how many partners have you received for the batteries? I mean...

As I said, moving to a higher volume because it's not a sort of a high-volume manufacturing lines like what you would expect to see from contract manufacturers. But to us, it's a much higher volume manufacturing process that we are now entering into. And that provides at least 10x as many battery cells where we are right now, and there is a further potential on that.

And there is a reason why we went to 24/7 operation. That is to deal with, I wouldn't say demand because we are still getting -- it's our internal demand in order to have enough numbers to get into stacks and so on. But we need 24/7 operation and that also increases our -- the learning cycle. So we learn faster, we can solve problems faster if we encounter problems.

Good. And from the Q1 report, it says that 3 out of 13 evaluation customers have specified the 28 layer variant. And then the question is, can you explain what it means to specify a variant?

Yes. This is for evaluation agreements. So then we have three -- basically threelll alternatives. So it's the 11, 28, and 43. So that you can say that's our standards. And then they will say, "All right, my application will require, say, 10 milli-Amp-Hour" enough space for two batteries, then you could fit two 43-layers. They are both 4.5 milli-Amp each. Or and another customer with -- sorry, 28-layers. They are 4.5 each. 43 is 6.5 milli-Amp. So that kind of determines it. But some of the customers may not have -- they may have a different need altogether. They just want to test that the battery technology is working that, in fact, it does what we say on the tin.

And typically, that will -- because, as Lars says, I suspect very few of them wants exactly that form. They have different needs, but they want to fill the comfort that we are able to do the basics. And then that then naturally transforms into a joint development agreements that, hey, you know what? This is what we need. We need a rounded battery. We need a different shape. We need a different size. And then by proving that, okay, we can transform this baseline technology into the specific form, specific size, the specific character of your needs. And as that then matures, then that evolves into okay, we're not your manufacturing partner. We're not the typical high-volume manufacturer. So who do you prefer? And then that is being taken then into a license agreement with their preferred volume producer. So that's sort of the road map.

Yes. And in regards to the competitors. You touched upon this in the presentation, so it's a follow-up question to that. Will you still have the same technological advantages by the time your batteries are actually ready to ship in volume?

Yes. Yes. It's when your technology strategy is based on one type of substrate, you are fairly limited to how far you can bring that in terms of functionality, features and qualities. It has so defined limitations. So that is -- yes.

And then it was reported that two people from the Nomination Committee resigned. Do you have any color on that?

Yes. So we have had an AGM today and where the proposal was to cancel all the proposals from the Nomination Committee as was stated that and which is correct, that the Nomination Committee was not according to the status having 2 of 3 resigning. So there will be a new AGM with the Nomination Committee that has been proposed.

Good. And then, yes, when can we expect a cooperation with a development company?

Again, it takes two for a dance. We are ready to dance, and that may happen sooner or later. It's -- as I said, they had their internal processes. They have their own internal agendas and I don't want to speculate in that. What typically or what most likely will always be the case is that we are a small company compared to the JDA partners. Now what can we do in order to leverage some kind of a bargaining power? The only way we can bring bargaining power in our favor is to create competition, and that's what we're doing. We are leveraging a unique battery technology, driving up alternative joint development agreement partners so that we have alternatives. That's what we do.

And yes, some of the questions are a little bit of the same. So I can just follow up on that, which specific milestones or similar are the customers' partners awaiting before they're ready to put the signature on the GDA?

Specific, I think there-- for the current discussions that we have, it's their internal process. It doesn't have anything to do with us any longer.

And then several other questions are, of course, also related ...

Let me add to that. Then you have alternative JDA partners, where 28-layer will definitely be an important aspect to the decision-making process. Moving from 11-layers to 28-layer will dramatically increase our confidence, our stated volume energy density level. We said that the 11-layer. Yes, it is at north of 200-watt hours per liter, moving to 28 and then finally to 43. We know that we will approach 750-watt hours per liter. And then you are so far above what competing battery technology can provide. So obviously, the development here will be and pay importance into further and additional JDA agreements. But it's not limited to that progress. It's -- we're seeing, based on what we achieved with the 11-layer, where we demonstrated that we can stack. We are able to encapsulate it and we are able to have a decent amount of charge cycles. Just that. No one else has been able to prove this. So just by doing so that in itself has opened up for these additional discussions and JDA opportunities.

Good. And in relation to the production process, this is more of a detailed question. But in the Q1 report, the mentioned two different processes. One is the introduction of a new carrier transition process to further improve yield and simplicity back end processing and also the automated testing to replace the visual inspections, freezing, et cetera. Can you explain what this means and what's the difference between these two processes?

Well, they are complementing processes. So if we go to the back end, then we have it is still -- you see it's a lot of steps there, and we are working with quads and a lot of different elements where we put in insulation and so on and so forth to do laser cutting. So we are -- with a new carrier, we are having a more steady stream. So it takes out manual handling. -- of dealing -- moving these batteries along. It will -- which creates better uniformity and a smoother process. And -- it will also simplify the number of laser steps needed. So again, that will also then, as a side effect, it will increase our throughput in the factory.

So it will increase volume, reduce the number of manual handling steps. Through that, reduce the potential failure sources. It will improve quality. So it's a natural logical step forward to us. It's a much more automated manufacturing process, but one that we could not move into before we knew what I said. We need to know what works, what doesn't work, why it works and why it doesn't work. Knowing that, now we have paid the way we've taken away all the manufacturing issues, the questions that we had. For that reason, we're able to move to a much more automated manufacturing line that allows us to bring this company, as I said, to the next level producing 28-layer, producing 43-layer engaging with new and additional customers and expand the commercial activity level.

And there will be more automation added late as we progress. But then the inspection tool, that is at the end when you have the stacks there and then right now, let's say, before, we were looking at basically visual inspection with [indiscernible]. That doesn't look right. It's a bit bad, It's peeling on the side. And you basically spot check and you can't do 100%. Now with the tool, you do 100%. And they -- I mean, you look inside the stack. So it's not just the visual inspection. So that will help us -- that will also, I think, again, talking about artificial intelligence that will give us plenty of sort of needs to work with in order to learn from it and then transfer that knowledge to earlier in the manufacturing process.

So our customer that has placed the 150,000 unit order. Their end product is much more expensive than our battery. They don't want to have to recall. So when we today say that we have a 90% stack yield, that's not good enough. We need to approach 100%. A automatic inspection tool that inspects 100% of our batteries will be a dramatic improvement in that stack yield.

That was also a question -- just to confirm, the net order is, of course, still active?

It is, as I said, when we demonstrated the 11-layer, if you would have been in the room and see the joy, the enthusiasm, the energy from our customer, you wouldn't ask the question.

And in regards to financing, this is just an assumption, but from the client that asked the questions, it seems to indicate that you have financing through Q3. But are you looking at other financing options like traditional loans, et cetera, going forward? It's just in general?

Well, yes, looking at it, but our balance sheet is not strong enough to get traditional loans. So we haven't pursued that. We do look at, of course, financing through the joint development agreements. That is an avenue we are pursuing.

We want to capitalize. We want to capitalize on what we're now able to demonstrate and to start ship to customers. So that technology leadership, we want to transform and make use of that to fund the company as we move forward.

And are you able to start commercial production as soon as the 28-layer battery has been validated by customers?

Well, in smaller volumes...

Theoretically, yes, in smaller -- still smaller volumes but also, let's say, when we are ready, and it's all good. There is a product qualification and certification process that sort of needs to go through because at the end of the day, these batteries will be approved by the EU, by U.S. sort of standards committees. So we have to go through that process, and that will be probably three months, but we can do things in parallel and a lot of let's say, the -- let's call it, the lead customer with 150,000. They can do a lot of their own sort of characterization for the product whilst we are working on it.

So yes, several clients have asked the same, but when is the expected time span then, until the 28-layer batteries finalized approximately?

Let me start in a different end. The time lapse between the 43- layer and the 28-layer will be shorter, will definitely be shorter than the time lapse between the 28 and the 11-layer. Because now, as I said, now we're moving our manufacturing of the battery cells to a newer, higher volume and manufacturing line with higher precision. And with that, I would say this summer and where we target sooner rather than later. That's how I would answer or yes.

And do you see any commercial interest for the 11-layer battery? Or is it more ...

It's a door opener. It's a door opener.

There will be commercial interest for it.

And particularly within the field of the MedTech field there, they are not necessarily looking at these higher resource batteries, they are looking at smaller devices.

So we can go below 11 as well.

Exactly.

And then you touched upon this also, but in April on the press release, it was, of course, focusing on the cycle rate of 50-plus cycles for the 11-layer battery. And was the number of 50 cycles a threshold that the battery was validated to? Or is it...

It was our conference. Our internal own confidence.

Okay. But how long is potential cycle life of the 11-layer?

I mean it doesn't matter whether it's 11, 28, 33, it's just inherent qualities of the battery, so that you get the full capacity out of each cell which we have 11 of in stack of 11 and then also the right level of impedance both those will have a positive influence on the cycling. So I would say the cycling when you say 50 plus, it's kind of a milestone on the way to higher cycling. And it will be uniform for all batteries. It's the inherent quality in the battery itself, not the size of it that determines the cycle.

We know that the theoretical number of charge cycles that this material may be able to handle is up towards 3,000 charge cycles. We do have discussions within the field of MedTech applications requiring some 1,800 charge cycles.

Which is 5 years if you charge every night, for instance.

And obviously, when you talk about MedTech, yes, you do have devices that go inside your body and you want it to last for some time. So it's natural that you require certain amount of charge cycles. If you look at our current production order, then you're talking about some 200-plus charge cycles. And remember that compared to normal battery, today's battery technology, liquid lithium battery technology, I was not talking about each charge cycle, last with this same performance, some 3x longer.

I think we'll take three more questions. In general, what kind of products does the partner want to make with your technology, if you can just ...

Today' smaller,-- today's space constrained. Looking at our technology road map, being able to increase our volume energy density north of 750-watt hours per liter, way beyond that. Then suddenly, you expand the footprint of our technology into a wider array of electronic gadgets. In theory, you could basically talk about all electronics.

And it is, of course, they want smaller, but be able to power more functions. So the 12.5C it's an important criteria in that sense.

And then the quality of the batteries, it seems to depend very much on the manufacturing process, of course. But is your preferred manufacturing strategy to license manufacturing of tailor-made batteries or to have one partner for manufacturing?

No, no. We will have multiple -- each of our customers. And then you're talking larger, high-volume customer applications. They have their own preferred manufacturer-- volume manufacturer. So we will team up with each one of these, enable them to manufacture our batteries according to our customers' specifications, using our IP, paying the license and paying the royalty for each battery. So yes, we will have a certain manufacturing capacity, but that's for targeted customers, high value, challenging customers, driving our technology road map higher and higher.

Thank you very much. I think -- I mean, many of the questions are fulfilled and are answering each other. So I wish to say thank you very much, Terje. Thank you very much, Lars. If you have any more follow-up questions, you can feel free to reach out to your [ Arctic broker ] or reach out to Terje or Lars on e-mail. So thank you very much for your time.

Thank you.

Thank you.