Quarter 1

Q1 2026 Earnings Call — May 13, 2026

Management: Q&A session. Please note that this call is being recorded. Before we go to live questions, we're going to read the two most highly voted questions submitted by shareholders ahead of this call during the call registration.

The first question is, previously, management has discussed multiple pathways to achieve final smartphone qualification targets. Could you elaborate on which of these pathways currently appears most promising?

Executive Name (Title): Yeah, thank you for the question, and thank you all for listening. Of the pathways we discussed, as I mentioned in the prepared remarks, we've now aligned with Honor and a combination of, you know, of different pathways that we could use. The 0.7C legacy test requirement that's been mainly for based on graphite batteries. We've aligned with our customers that is not a must have requirement and it's been removed as a gating item. We're now working on a slightly different 0.2C test which more better reflects the real world usage of the smartphone. And that's been prioritized now. And not just with Honor, but many other lead customers also agree to the same thing. In general, I feel like the smartphone market now, people are realizing that as silicon batteries become more and more popular, they should really change the requirements in the market that have been used mostly for graphite. So it's really nice, really great results. I'm really pleased with my team being able to convince them. Now the 0.2C test is more than halfway done at our customer, and it's continuing to go, and we're tracking it.

The second question is for your AI2 platform. When will the samples be submitted to customers so that testing can begin?

Executive Name (Title): Yeah, as I mentioned in the remarks, we have engineering samples now inside, and they look really good in terms of the 20% energy density increase from AR1. Great achievement by the R&D team, you know, harnessing the full potential of silicon. And these will continue to get better over time. But these samples, we expect to sample this quarter to our customers. And quite a few people have actually expressed interest in that, and we got a few sample purchase orders now. Thank you.

Management: We will now go to the queue.

Our first question will come from Mark Shooter with William Blair.

Analyst Name (Firm): Thank you. Hi, guys. Congrats on the progress. My first question is just focusing in on Honor a bit. I saw in the press release that you have some field testing looking at the second half, right, is when you're targeting. So I'm wondering if you could give us an updated understanding of what unit volumes may be for that field testing with Honor, and if successful, do you have a better view on what a ramp would look like in 2017?

Executive Name (Title): Yeah, so... Again, as I mentioned, now we have a test methodology that aligns with Honor. So we're in the middle of doing that. And the next big step is to actually... put the battery inside an existing phone for which, you know, we made this custom-sized cell. It's hard to predict the number of units. They'll be small because it will be an initial test just to make sure that everything is smooth and limited launch maybe. But the real volume will be, you know, in 27. But more importantly, we got the size for that particular battery that's going to be launched in 27. And we're now working on how to make that battery after the free clutching is complete.

Analyst Name (Firm): Okay, great. Thanks for the color. Switching gears into drones, which is a very interesting opportunity, and congrats on the silicon carbon composite and that mixed graphite cell. At 360 watt-hours per kilogram, that's going to put you well in the running against the current peer set. So I'm wondering if you could speak to maybe some of the customers that you're engaged with in sampling and say you win all that business today, everyone you're engaged with. Do you have an idea of what those fall times look like and your current unit volume and revenue capacity?

Executive Name (Title): Firstly, thank you for that comment on the drone cell. We are also super proud of the engineering team that came up with it in a very short order, particularly because we have a well-established manufacturing facility that we own. We were able to quickly make that. You know, the product actually is extremely competitive with what's in the market today and is made totally within our factories. It's not contract manufactured. Actually, I have the phone battery here with me. You know, we have a bunch of these cells now. So, we... There is a lot of interest, and I just got a call from our sales team who is at the Detroit drone show right now about the tremendous interest they're seeing because this is also an NDA compliance cell, which is actually a big deal for many of our customers. The go-to-market of this works this way. Typically, there are people who take this and put them in packs and put the BMS around it and the system around it, and that goes into multiple drone makers. So it's hard to call the volumes right now, but the market is so fast and growing really fast that we think that the cycle times, the qualifications times will be shorter than things like smartphones because there's such a demand. And also, the cycle life doesn't have to be that long in these. Our style goes to 300 cycles, but even shorter cycles are okay in some of these markets.

Executive Name (Title): And maybe I'll chime in. You know, Mark, you asked about volumes. You know, again, we've talked about in the CapEx forecast and prepared remarks, we're already spending dollars to add equipment to one of the existing buildings in the Nansen facility. And, you know, one of the great strength advantages that we have sitting on our balance sheet is we have multiple empty buildings in that facility as well. So we have, you know, numerous stages of additional expansion capacity there. And we're just going to do that in a methodical way as demand presents itself.

Analyst Name (Firm): That's great. Thanks for the call, I guess.

Your next question will come from Colin Rush with Oppenheimer.

Analyst Name (Firm): Thanks so much, guys. Can you talk a little bit about the mix of silicon material that you have in the new drawn batteries and the pathway from the 360 to 400? How much of that is being driven by increased thickness or, you know, different form factor or increased concentration of silicon in the anode?

Executive Name (Title): Great question, Colin. So when we did this one, the way we did it was to, there's an existing requirement for a cell that's in the market today that many of the customers wanted us to provide something that is fully NDI compliant, you know, made within our factories. So we made that one, and we quickly got it to that performance. Actually, it performs really well. The cycle life is really good, and the capacity holds. We have about 60% SIC in that cell, but we now believe that we can get that to a much higher percentage. Because, you know, in this market, some amount of swelling is okay, because it's inside a drone, and you can put pressure and put it in there. It's not a space-consent situation like a smartphone. And also, the discharge rate and the pulse discharge and the number of cycles are variables we can keep tuning. You know, we mentioned, you know, 400 watt hours per liter as something that we could produce. I believe we can go much higher than that by just making the right tradeoffs between cycle life and discharge rate and the amount of swelling they allow.

You know, so I think the good news is we have been working on silicon for a long time, so we know exactly what electrolytes work well with silicon. We've been working with graphite for a long time in Nanshan. We have that know-how, and we have a factory that's been supplying for defense for a long time. So our quality of the product that we actually supply to defense is very, very high bar, and that factory is actually qualified for that. So that's why I think that you will see a pretty competitive roadmap from us for this market very quickly.

Analyst Name (Firm): Great. And then, you know, looking at the laser cutting, I just want to understand kind of the cadence of learning cycle on yield improvement and how we should think about the engineering work that you're doing and how quickly you can implement that to start getting a little bit better, you know, output on overall facility.

Executive Name (Title): Yeah. So, as I mentioned, from last quarter to this quarter, we've improved our yield across multiple zones, you know, well into the 90% range now in most of the zones. The laser, like, is kind of in the 80% range, but that's improved quite a bit from last time. But as you guys saw in the video, we've been working on this for a while, and today I thought it was a good time to show you a combination of laser and mechanical grising that actually cuts much, much, much faster and much cleaner. When you laser dyes, there are also some challenges that we've been working on for a while, which is, you know, how to get to the – The yield and the throughput and so on, it's an expensive way to do things. So we have always, you know, right when I started, we've been working on a different way to actually do this. And you saw the mechanical dicer now. So we have enough lasers and we have enough throughput to, you know, meet the demand for this year. And we will get the mechanical dicer. Our plan is to get it online this year. So for the next year's demand, we can use the mechanical dicer with some combination of laser finishing it up. So really exciting results. So I hope you guys saw that video also, the throughput that we can produce with that.

Analyst Name (Firm): Okay, thanks so much, guys. Thanks, Colin.

Your next question will come from Jeff Osborne with PD Cowan.

Analyst Name (Firm): Yeah, thank you. Maybe just a quick two questions, but one quick follow-up on Colin's. Can you get the 90% yields without that machinery intact, or do you need to add the lasers to get there, and that's more of like a 2027 event, getting the 90%?

Executive Name (Title): Maybe I'll take that. Yeah, I think we can... We're capable of getting the 90% yield, but again, it goes hand-in-hand with throughput. I mean, again, you saw the video. The Mechanical Dizer is just able to operate so much faster. And so, ultimately, all this, you know, I'm the finance guy. Ultimately, it's about cost. We just think it's the most economical way, eventually, in some of the sub-process steps to operate.

Analyst Name (Firm): Perfect. And cost of the machines, right? It's a less expensive way to get throughput.

Executive Name (Title): Yeah. Perfect. My two questions is, one, Ryan, I was just wondering if you could update us on the M&A pipeline. I think you've been out there searching for a couple quarters now. And then just, Raj, a clarification. You mentioned providing packs to put in a phone, small quantities in the second half of the year, but then you mentioned something about getting a second design. It was unclear, is there a second SKU that they've given you, or is the SKU that they gave you what they intend to produce in 27? I'm just trying to get a sense of your relationship is deepening with them, and they're giving you a glimpse of what they intend to commercialize after the first product launch.

Executive Name (Title): It's exactly the latter. So we actually have SKUs at the launch in 27, which is actually a fairly large deal and shows the relationships we have with them.

Executive Name (Title): And then in terms of the packs on or the quantities, any comments on that?

Executive Name (Title): Yeah, it will be small volume. Again, it will be just to test and make sure that the system level stuff works okay and we get small initial launch. And I think that's, you know, again, that's fine with us just to make sure everything is good before we get into high volume.

Analyst Name (Firm): Like thousands of friends and family and stuff?

Executive Name (Title): Yeah, that's probably what you should think of.

Executive Name (Title): And then on the first question in terms of M&A pipeline, so I'm really pleased with the pipeline that we have multiple opportunities that we're pursuing. Again, as we said and repeated time and time again, we're going to be disciplined. So it has to meet a strategic fit and we're going to be disciplined on price. So it's fair to say that we've looked at quite a few opportunities that we just didn't like the price tag and we've moved on from. I think we're excited about some of the opportunities we're pursuing, but, again, we're not going to waver. We think we're going to be disciplined stewards of the capital and make sure it makes sense, and it's something that Raj really sees a strategic fit and benefit, and it's something that I can be here on an earnest call and be proud of the price we paid for.

Analyst Name (Firm): Perfect.

Thank you.

Your next question will come from Rupalu Bhattacharya with Bank of America.

Analyst Name (Firm): Hi, thanks for taking my questions. Raj, I wanted to ask the first question on smart eyewear batteries. I think the press release says that you expect 50,000 units in 2026. How should we think that that scales as we head into next year, and how should we think about the revenue progression from smart eyewear over the next few years?

Executive Name (Title): Yeah, so... The 50,000 is, you know, this year. Firstly, I wanted to say that, you know, with the way where the yields are and the throughput is and the way it's working, we're not able to manufacture this sell in our lines. And the customer, if you deliver to the customer, they're testing them, it looks good. So, firstly, that's, I think, a great, great opportunity. As I mentioned, it's a huge market growing rapidly. It should be in the millions next year. It's hard to tell exactly how much. We have sampled to many different customers now because what we have is a battery that really makes the product. Because energy density, right now, as you know, many glasses out there, they don't last the whole day. So this one actually continues to improve on that. And now that's why we decided to launch the next product using our AI2 in that space first. because the market was really asking for even more because it's just very difficult to have the product last holiday without that. So we do think that the first product will launch this year, the next product, AI2, we're going to sample this summer, and that will go into production next year. So we expect it to be in the millions next year.

Analyst Name (Firm): Okay, thanks for the details there. For a follow-up, can I add, Ryan, as you rank the smartphones later this year and next year, the smartphone batteries, how does that impact gross margin? I think some effects might move into COGS. So can you just help us understand how we should think about gross margin progression as smartphones become a bigger part of the mix?

Executive Name (Title): Yeah, certainly. So certainly as we ramp the smart hour in the smartphones, you're going to see some change. And you will see some of the costs right now that we have in operating expense will move up above the line into the cost of goods sold line. But really, whenever you think about our cost structure, the majority of our cost of sales is materials. So it's really about continuing to drive the bill materials cost down, and those will be materials that we purchase for those orders as we prepare to ship them. So that's the vast majority of our costs. So when you talk about direct labor, variable overhead, and even fixed overhead to some extent, although we have some material costs as it relates to the cost of the factory, as we get to a decent amount of volume, it ends up being a very small percentage of our costs.

Analyst Name (Firm): Okay. Thanks for all the details. Appreciate it.

Analyst Name (Firm):

Your next question will come from Derek Soderberg with Cantor Fitzgerald.

Analyst Name (Firm): Yeah. Hey, guys. Thanks for taking my questions. I was wondering if there's any way you can segment that 130 million Korea pipeline, you know, drones and defense opportunities, how much of that is sort of legacy route, Jade, and how much of that is drones?

Executive Name (Title): Firstly, this is future-looking revenue. So, actually, a lot of it is new designs that we are working with customers to get. And so, in some sense, some of it is continuation of the defense business that CrowdGrid had, but majority of it is actually new stuff that we are winning. And drones is like over 60% of that.

Analyst Name (Firm): Yeah, that's helpful. And then, just curious on the NDA compliance piece, I was wondering how unique that is. I know there's a couple others that have that, but not too many at this point. You know, might it be difficult for others to sort of achieve that over the next couple years? And then, you know, within drones, what kind of drones are you getting interest in? You know, there's a wide variety of, you know, sea drones, air drones, heavy and light. Where do you guys think you can build, you know, a nice business in drones?

Executive Name (Title): Yeah, so an AI compliance is actually not that difficult. easy to achieve because there's multiple elements to that under where the cost of the things that are sourced, what percentage of them have to be from this FEOC and non-FEOC countries, and then where the cells are actually manufactured. So, for us, you know, we manufacture them in non-South Korea, which is, you know, a non-FEOC country. It's very good there. And then most of the material we have in there, majority of it is actually not sourced there either from a few countries either. So in that sense, it's a big advantage for us that we own our factories and we have the material. In terms of drones, we are seeing it in, like, training, you know, public surveillance, inspection, public safety, multiple markets like that. What varies between these drones is, you know, kind of like a discharge rate, but it also depends upon how many cycles. The first product we made is, as I showed, 300 cycles, this one that I talked about.

But we have the technology and we have the know-how and we have the factory now to make different products optimized for slightly different, lesser cycles, but more energy density and so on. So we will have a roadmap of products in various parts of the market as we start building out that roadmap. It's an opportunity that really grew very fast and came quickly. I apologize if you already mentioned it, but obviously we've got a long history of subsea drones. So that's something that I think will continue to be a strength for us as well.

Analyst Name (Firm): Perfect. Thanks, guys.

Your next question will come from Alex Valero with Loop Capital.

Analyst Name (Firm): Please unmute your audio and ask your question.

Analyst Name (Firm): Yeah, hey, guys. Thank you for taking my question. Yeah, just on smartphones, what impact is memory concentration having on your lower-end phone volumes?

Executive Name (Title): We're not shipping much volume right now, right? So I think not so much impact right now, but we do see that – um the number of units shipped this year will probably be much lesser in terms of the total number of smartphone units shipped. Um hopefully that will normalize over the next couple of years by the time we get into higher volume it may be less of hopefully it'll be less of an impact but right now not too much impact.

Analyst Name (Firm): Okay, thank you for clarifying that. And yeah, another clarification question. Did you say that the 0.7C testing requirement was removed or you're hoping to remove it? And if so, what impact does that have on your smartphone qualification timeline?

Executive Name (Title): Yeah, our customers agreed to remove that as a must-do. They agreed to actually have a variation of the 0.2C and 0.1C and so on, which is actually how the phone is actually used as a gating requirement. So that does help. You know, in terms of timelines... it will probably take a little bit longer because the 0.1C, 0.2C take longer to run. The 0.7C is a faster discharge. It's an accelerated test, but it hurts the battery. So they realize it's hurting the battery. It's not really helping. So in that sense, it may take a little bit longer to do 0.1C, 0.2C discharge because the time it takes to qualify is a little longer, at least on the first launches. But once we get to it, we understand what it is. We understand the trend. It should become normalized.

Analyst Name (Firm): Got it.

Thank you.

Your next question will come from Bill Peterson with JP Morgan.

Analyst Name (Firm): Your line is open. Please ask your question.

Analyst Name (Firm): Yeah, hi. Good afternoon. Thanks for all the details on the call thus far. For AI2, the 20% increase in energy density, you know, using this sort of the next generation platform, can you speak about the tradeoffs of this, including cycle light that we can consider? I realize this, at least in the first stage, is for eyewear, but I'm assuming that AI1 will be your focus for your initial and second smartphone customer, but do you have a plan to sample AI2 for smartphones next year, or is this longer dated? I'm basically trying to get a sense for what needs to be solved for the next gen to be used in smartphones.

Executive Name (Title): Yeah, absolutely. I mean, look, I think the advantages we showed with the 20% increase on the smart glasses, that's why we showed a little bit of color on how we got to that. We increased the cathode voltage. We reduced the amount of inactive materials in there. we will put those, we will absolutely put those things into our smartphone battery, and you will see us improve it similarly. There's a few other things that we will continue to improve. Packaging efficiency is one of them, how we actually package this. There are slightly different electrolytes. So, we have a strong roadmap that will keep increasing energy density. I mean, the thing I mentioned to you, Bill, is that, as I mentioned before, we use 100% silicon, but we're not getting the full potential of the energy density increase that 100% silicon could and should provide because we've been trying to solve other problems like cycle life, 0.7C, you know, accelerated testing, fast charge and so on. But once we now work with the customers to get those things, you know, understood and how exactly to do the qualification, we'll continue to improve our energy density. And the first insertion of our improvement energy density we showed in the AI2 in the smart glass, but we'll quickly roll that into smartphones for next year.

Executive Name (Title): And the other assignment as well here, you know, the finance guy is happy to report that some of these key things on the roadmap not only improve the energy density but also reduce costs out of the bill materials and reduce the cost of manufacturers so it's really kind of magic time when that happens.

Executive Name (Title): Okay, and one other thing Bill, maybe since you asked about the energy density roadmap, I know it's a question that's come up. Our batteries swell very little. So the existing batteries, even with the ones with silicon dope, still swell. So most of the smartphone OEMs actually leave a space in the phone to allow the battery to sell at end of life. So we actually don't need that space. So if we get that space also, that's what we're working with our customers, they allow us to use that, our energy density will be even higher. So once we get to qualification, we will be able to take advantage of that piece also.

Analyst Name (Firm): All right, thanks for that color. On the timeline for shipping or the general trend to move towards mechanical dicing, are there any new challenges that we need to be mindful of? I'm wondering about particles or mechanical stress or other technical issues you need to overcome. Or maybe even said another way, why wasn't mechanical dicing the primary path for this relative to laser dicing?

Executive Name (Title): Well, I mean, you know, again, as you saw in the video, I wanted to show you guys a little bit of the machine. This is a complex machine that we've been working on building for a while. It's not like you just take a roller and put a roll in it, right? So we have to build roll-to-roll roller. We have to ablate. You know, we have to dice it. We have to find the right kind of binders and materials to actually make the right kind of coating in the electrolytes so that, as you said, when you – do it mechanically, it still holds. So, a lot of R&D, a lot of know-how has gone into it. We've been working on it since I joined. So, in that sense, it's a, I'm very excited by the great technology that our teams have advanced and there's still, again, there's still issues to be solved, right? So, we have to finish the dicing of it, we have to finish the anode, finish the cathode, and put it in a full cell. So we're going to take this year to actually do that because we have enough lasers to, you know, meet all the demand we have for this year. And absolutely next year is when we'd like to roll it out.

Analyst Name (Firm): Great. If I could seek one more in. On the part that TJ wrote, so 72 to 75 tests, two life cycle and one below freezing power test. I'm not sure about the freezing power test, but is there any insights to how your expectations? I think you feel more confident about the cycle life, but what about this freezing power test? It's something that I don't think I've heard much about in the past.

Executive Name (Title): Yeah, it's one of those corner use cases because what happens is silicon behaves differently than graphite at very low temperatures. So if your phone with a silicon battery is extremely cold when you start using the phone and you suddenly have a use case where you pull a lot of energy out very quickly, you know, there are some challenges to how much energy a battery can put out. So these are the kind of situations where we're working very closely with our customers to see at what use cases does this happen, how much does it pull in, and which parts of the world, and so on. So it's, again, like the 0.7C test, silicon is different from graphite, so the tests you had before don't quite work exactly the same. But, you know, so that's one of those things that we're working with them, and I do believe that we will slowly get past that also as we continue with this journey.

Analyst Name (Firm): Thanks, Raj, and Ryan, for the details.

Management:

Your next question will come from Gus Richard with Northland Capital.

Analyst Name (Firm): Yes, thanks for taking the questions. You mentioned $130 million in pipeline for military projects. Is that an annual number or is that, you know, a lifetime opportunity? And, you know, how much currently, how much capacity in Korea do you have to support that?

Executive Name (Title): Yeah, so it's a total we keep in terms of what are the new designs that we are talking to customers and they're coming. So we can update that every quarter. It's not like annual. It's lifetime of those designs we have. They may take one year. They may take two years, you know, time to launch. We have enough capacity right now, but we are adding capacity now. As Ryan mentioned, we are building out that factory more. Fortunately, in the last acquisition we made, we got almost 300,000 square feet of factory with lots of buildings and power and dry rooms and so on. Very good acquisition we were fortunate to get from SolarEdge. We are now fitting it to keep increasing the capacity in line with the demand because the qualifications take a little time, so we are going to work on the capacity increase in line with that demand. On a relative basis, of course, this is, you know, roughly standard equipment, so it's just blocking and tackling.

Analyst Name (Firm): Got it. And then when you mentioned the eyewear customer, I believe you said it was a reference design. I was wondering if that's an OEM or a chip company's reference design.

Executive Name (Title): Yes. Well, again, because of confidentiality, I can't really exactly comment more than who that is. But one thing I'll say is eyewear, let me add a little color to it. If you actually think of things like eyewear, there are things people wear on their personality. So, it's a very style-based thing. So, most of the eyewear things we buy, as you know, comes from fashion brands, right? So, like, I mean, you can think of Gucci's and Prada's and whatever. and Ray-Bans and, you know, and so on that you buy from Sunglass Hut. So most of the tech companies or even chip companies and so on will actually make a reference platform so the ultimate product is actually branded as a fashion product, right? So that's why it's very key to get a reference design, you know, with one of those leading technology providers so that then the channel to market can be through the fashion brands.

Analyst Name (Firm): Got it. Thanks so much.

Management: There are no further questions

at this time.

With that, I'd like to turn it over to Dr. Raj Taluri for closing remarks.

Executive Name (Title): Yeah, I mean, thank you, everyone, and thank you for all the questions. You know, over the past year, much of the discussion has been on validation of the technology and its commercial readiness. You know, we believe this quarter we provided additional evidence, and the conversation can include a shift towards, you know, disciplined execution against commercialized milestones. The markers to watch over the coming quarters are clear, right? Continued progress on qualification, targeted system-level deployment, initial smartphone production ramp, and conversion of this drone pipeline into revenue. Now, we view these as tangible operational milestones that we expect will demonstrate progress methodically over time. And thank you all for your support.

Quarter 2

Q4 2025 Earnings Call — February 25, 2026

Management: Before we go to live questions, we're going to read the two most highly voted questions submitted by shareholders ahead of this call during the call registration. The first question is, how does your current strategy differentiate NFX from competitors?

Thank you for that question. So in NFX, we use 100% active silicon anode. Most of our competitors use graphite for the anode. Silicon anodes can store much more lithium. So we are able to provide much higher energy density because of that. One of the problems with replacing graphite with silicon is that the silicon tends to swell when using a battery, when doing a charge and discharge. We've got an architectural advantage where we figured out how to enable the silicon anode from not swelling while maintaining the energy density advantage. That is our main advantage. That is how we differ from most of our competition because we provide much higher energy density due to using 100% active silicon anodes.

The second question is, at our current burn rate, how long is our cash runway? And under what conditions will we need to raise additional capital?

I'll take that one, of course. First, we ended the year with approximately $621 million in cash, cash equivalents and marketable securities. So we're operating from a position of strength, in my opinion. Second, I'd caution against thinking about runway purely in terms of static burn rate, because our spending is tied to a very specific qualification and commercialization milestone set. As those programs progress, the working capital and capital expense profiles will evolve as well. As we said in the prepared remarks, we believe we have sustained liquidity, substantial liquidity to execute on our commercialization strategy without needing to raise capital in the near term. That said, as we've discussed before, beyond that, we'll always evaluate capital allocation options, such as strategic M&A, opportunistically, but with process rigor.

We will now go to the queue.

Our first question comes from Mark Shooter with William Blair.

Analyst Mark Shooter (William Blair): Thank you, guys. So I appreciate you getting into the details and geeking out with us a bit on the smartphone C-rate test requirements. The 0.7 C-rate lifecycle test is definitely overkill for smartphones, but it's an incumbent standard, and they're notoriously sticky and difficult to change once established. So I am wondering, in your engagements with Honor, how receptive were they when you suggested the change? And given that, you know, cycle life and energy density are always paired trade-offs, would Honor take a formulation that hits that 0.7 rate cycle life spec with a slightly lower energy density?

Management: Yeah, thanks so much. Thanks for the question. Yeah, you know, I think the first thing is to, you know, the reason I showed some of the material in this talk is to actually show that most of the use cases in the smartphones, as the batteries get bigger and bigger and more and more capacity, are under 0.2C discharge, which basically means that we have a battery that now we believe under 0.2C average discharge rate goes over 1,000 cycles. So we essentially feel we have a battery that meets the requirements of the smartphone market.

Now, as I said, one of the challenges is if you want to test if the battery meets the requirements at how the normal battery is used in the phone, it's going to take you a year at least to run that. Because if you run it 0.2C, it takes a long time. So customers typically use a higher rate of discharge, like 0.7C, to cut the amount of time it takes to test. This is very similar to people used to use a burn-in test, for example, for chips, you know, high-temperature ovens, you know, try to find the early failures.

When you change technology from graphite batteries to silicon anode batteries, silicon anode batteries behave differently when you discharge them very fast in this 0.7C. So Honor and our other smartphone customers, we've talked to them. They understand that. They realize that this test is a proxy and an accelerated test and not a true test. But like you said, this is a test they have been using.

We are in discussions with them. You know, we see three pathways forward. You know, one is we're able to convince them that this is not a real-life test and the real-life test is really 0.2 C and we can get a waiver on less cycle life for 0.7 C, for example. By the way, this has got nothing to do with energy density. It's purely about cycle life testing. So it's not like they need to take a lower energy density. They just have to take a lower cycle life on 0.7C, which is not a real test, an accelerated test.

The second one is we have to find together with them another accelerated test that is more representative, if you will, for silicon anodes. And we have some ideas on what that is, and we are discussing with them on that. The third one is we'll just have to modify our electrochemistry just to pass this test at 0.7C. So we are working on all three of those. Ultimately, there is a lot of interest from our customers in wanting to use our batteries because of the higher energy density we provide.

And the roadmap to even higher energy density is because of 100% silicon anode. And those conversations are going well. But ultimately, we need to solve this passing of this test to a way where they and us both are comfortable that in the real-life use case, when ultimately the battery is put in the phone, it's going to do really well and everyone's happy with the performance.

Analyst Mark Shooter (William Blair): Thanks, Trash. I appreciate all the color there. If I can switch over to the opportunity in smart glasses. In the presentation, you gave a lot of information there on the TAM as well. The performance advantage with a node that's a cell and technology goes up, but the battery and the application requirements get easier. So I can see how this is a faster commercialization path, but, um, you did mention an initial production demand in your release statement. So I mean, should we think about that as a purchase order? Or is that a next step? And can you frame what the revenue opportunity might be for 26? Or is this a 27 story?

Management: Yeah, good question. So, you know, as you alluded, when the battery gets smaller, but still the energy requirements or capacity requirements are high, we have a disproportionate advantage because the smaller it is, you know, the efficiency we have is better compared to our competition because the additional stuff we put in there for holding the cell from not expanding is not as much of a penalty, right? So that's why I think we're much more competitive there.

And also the cycle life requirements are much, much lesser. You know, they don't need to go 1,000 cycles because people probably change their glasses much quickly. Those two are very good. Also, the battery in smart glasses is the limiting factor. If you guys actually buy some of the smart glasses in the market today and start using them, you'll find that almost none of them come all day. Smart phones come all day, but most of these things will die in multiple hours. A better battery makes the product. That's why there's a lot of interest from our customers on using our battery.

And also there's lots of different kinds of applications, lots of different kinds of products. This is what I mean by, you know, there could be sport glasses, there could be utility glasses, there could be fashion glasses. And, you know, as I mentioned, when Android XR ecosystem comes, you know, there'll be even more products using that. So that's why the TAM is now suddenly much larger. We expect it to be in the next few years than we ever thought before.

So I think that's why we are very excited by this market and the fact that we can get there. Yes, you absolutely should think of the question you asked as a purchase order. And we are manufacturing them now to our lead customer. We are very excited by that. The whole team, I was in Penang last week. The whole team is focused on executing that and building those products and setting it out. Initial volumes will be lower just because they're just starting. But I think that 27, 28, we expect the market to really grow and be meaningful for us.

Management: Yeah, if I can just jump in and chime in. Had an old boss used to say, all dollars are not equal. It's a very important order for us.

Analyst George Giannourakis (Canaccord Genuity): Hi, both of you. Thank you so much for taking my questions and for the incredible level of detail in the presentation. I appreciate it. So maybe first question, you pointed to sort of a little bit of an issue with the electrode dicing in the manufacturing process, getting yields up there. How much have you been talking with your potential piece of customers around fixing that issue maybe together in anticipation of bringing production towards the end of the show? Thank you.

Management: Yeah. I think, firstly, as I mentioned, the yields on almost all steps are above 80%, as you saw in our 80% and above, as I mentioned. On the dicing side, they're close to 80%, but not quite there in fourth quarter. But this quarter to date, we're at 80%. So we feel confident that as we make progress, it'll sort itself out. But that's because we just started making two batteries, right? We just started making a smartphone battery and a smart eyewear battery.

We've been sampling a lot of batteries last year. We're now focused on two of them, one on agility line, one on high volume line. And we'll continue to work on each state to get it better. Our customers have visited our factories. They have seen it. We've got men through multiple customer audits. We have enough supply to meet all the requirements for 2026, and we're looking at various options to increase the throughput and get even more cost-effective than laser dicing methods to actually get the volumes up. So, yeah, a lot of focus on that, and we are working with our customers on that.

Analyst George Giannourakis (Canaccord Genuity): And maybe with regard to the drone opportunity, can you sort of talk about the different variations of chemistries that you have to work with? I'm assuming these are silicon dope cells, not 100% silicon. I'm approaching the market with first. And so how many different chemistries do you need to approach that market? And do you need any additional salespeople to sort of attack it? Thank you.

Management: Yeah, great question. You know, this we have been making, you know, we haven't really talked about it too much in the past. We've been making very high performance, high rate of discharge cells because, you know, because we were selling into a lot into the Korean military from our Nansan facility. And some of the requests came from drone batteries, and we started making those.

What we find now is with the market expanding fast, because as you guys have seen in the more recent political situations, there's lots of drones being deployed, both in commercial and also in military. We have now combined, used some of our knowledge online, on using 100% silicon anodes with our non-sun team. And now we dope those batteries also with silicon anode, with silicon, the graphite with silicon, and to increasing amounts.

As I mentioned before, when we put more and more silicon, the cells, the batteries swell. So that problem hasn't gone away. But since they're inside things like drones, even if they swell 10, you know, swell 10, 15% or more, there's space inside to accommodate that. So we have now find that we can make, you know, high, gravimetric energy batteries that do swell a little bit, but still good within the application.

Whereas in a smartphone, if you swell, it's not acceptable because it's very space constrained. So in that sense, I think it's been a really good thing for us. As I mentioned, we have a strong roadmap now and you'll see us sampling much higher watt hours per kilogram cells this year and just continue to increase that through next year. And we have a lot of customers now helping us with that too.

Analyst Colin Rouge (Oppenheimer): Thanks so much. Can you guys hear me okay?

Management: Yes, sir.

Analyst Colin Rouge (Oppenheimer): So guys, exciting that you're moving into the drones. Can you talk a little bit about the form factors that you're working on there, as well as the diversity of electrolyte and binder materials and binder processes that you can use you feel comfortable talking about at this point, just wanna get a sense of the full ecosystem here and potential product, you know, diversification that you might see within that opportunity.

Management: Yeah, sure. You know, all drones, again, like I said, it's a pretty big market and all of them are not the same, right? There are subsea drones, there are aerial drones, there are big aerial drones that carry a lot of weight. There are smaller ones that carry some munitions and maybe one-time use or just use for a few times. So we have different chemistries and different electrolytes to address that market.

This is one of those areas where we can trade off cycle life for energy density, for weight, and so on. You don't need to charge them 1,000 cycles. That's really not a requirement here. 300 is plenty. Suddenly, a lot more opportunities open up for us in terms of the electrochemistries we use. Our team in Korea has been doing this for a long time. We have multiple chemistries going after that. Some purely graphite, some graphite doped with silicon, different kinds of cathodes.

So multiple form factors, multiple products, but we understand this market pretty well. And the other important thing is in this market, having your own factory is a really big deal because manufacturing, that's something that our customers tell us, that the fact that we own our factories and we can make them in Korea or Malaysia is a big advantage compared to some of our competition who actually have to use contract manufacturing in China and other places.

So these are sensitive areas where having our own captive manufacturing helps us quite a bit. And I'll add to it, and I think it's part of it.

Management: I do expect that we'll add to the sales and business development organizations to support that. So it's kind of the time to build that group out.

Analyst Colin Rouge (Oppenheimer): And given what's going on in the U.S. in terms of trying to migrate manufacturing and secure supply chains back into the U.S. over the next few years, even from Korea, can you talk about some of your capital planning on a multi-year basis as you enter that market? In terms of having to have some localized or regionalized supply in the Western Hemisphere to serve some of the U.S. military?

Management: At this point, as Ryan mentioned, we were fortunate to acquire this facility in Korea last year from SolarEdge that added 300,000 square foot of total capacity factory we have in Korea now with a very capable team that's been building batteries for defense for 20 years and industrial applications. We have a large footprint there and we are now going to invest more into that this year to get more capacity there and again, so far I think manufacturing in Korea, our manufacturing in Malaysia seems perfectly acceptable.

We'll continue to see if it makes sense to bring something into the U.S. but we are quite, our customers are quite comfortable right now with those two facilities.

Analyst Jeff Osborne (TD Cohen): Thank you. I appreciate all the detail on the call so far. I wanted to know, Raj, relative to the last earnings call three months ago or so, the 0.7 C metric that you mentioned, is that new? Because you referenced sort of a four-month testing period. I'm just curious, like when the parameters changed and then when that I think you referenced a four-month sort of shot clock to proceed through the testing process and procedures.

So did the four months start three months ago and you'll know next month? Or did you get that new homework assignment, so to speak, in the past few weeks?

Management: No, that's always been there as a requirement. And our thinking was that we will figure out a way to, I mean, we will pass that requirement also. But I think what we find now is with 100% silicon anode batteries, you know, 0.2C requirement is something we can pass because, you know, we have data now that shows that.

When you discharge a battery, like 100% silicon-ion battery at 0.7C rapidly, which is not a real use case, as I mentioned. You just do it for convenience. It doesn't behave like the graphite batteries do. It behaves differently. So in that sense, it's one of those cases where the accelerated test itself has to be adapted a little bit for the kind of battery we are using. And we showed this to our customers and they understand it.

So we're now discussing what the right way to resolve this is, right? So it's not a new homework assignment. The results is what we have now is we've solved the 0.2C problem, which I believe is a real problem in terms of how a battery is used in the phone. Now we are working on how to resolve the 0.7C accelerated test in a way that both us and our customers are comfortable.

Analyst Jeff Osborne (TD Cohen): And you think that can still be done in a four-month window that started at some point this quarter? I'm just trying to understand when you expect, knowing what you know now, to pass the honor test, so to speak.

Management: Yeah, like I said, I think there are three pathways for us. One is we have results now, 1.7C, that don't go all the way to the cycle life that they want. But we are talking to them about how real is this? Like, it's a proxy test. Can we get comfortable? And, you know, for example, get a waiver that you pass this many cycles, it's okay. As long as the 0.2C is holding to 1,000 cycles. That's one pathway.

That may be the shortest one. The second one, maybe we come up with a different accelerated test, which we believe is more representative or better, makes them comfortable that silicon anodes, if we accelerate tests like this, they behave like how they would in a real-world use case. We're working on that, which is a different testing protocol.

And the third one is they said, no, you just got to pass this, in which case we'll have to change the electrochemistry and find a way to pass this, which we have some ideas on how to do. The team is working on that. That might take longer. So depending upon which one we are able to convince them, we'll get how much the time is. So we do believe that one of these things will be able to convince them before the end of the year and get some volume.

Analyst Ryan: Got it. And maybe for Ryan, just given Roger's answer on the three different outcomes there, as it relates to sort of modeling the business over the next few quarters, I know you only give formal guidance one quarter out, but I assume we should think about eyewear as the main driver outside of the RouteJade facility for the next six months or so is part A of the question.

And part B, can you just remind us of what you expect seasonality to be for defense? You've got a pretty precipitous decline in Q1. But how should we think about that rebounding in Q2 through the rest of the year?

Management: Yeah, thanks, Chip. The first part of your question, the answer is yes. So for the first, the near term, you heard it right. So smart eyewear is the more near-term opportunity. And then the second part of your question in terms of seasonality, exactly right. So if you look at the same pattern in terms of revenue that we had last year, Q1 tends to be soft based on the order pattern of these long-term defense contracts. And then the back half of the year tends to be much stronger, kind of evidenced by our Q4 that we just printed, which was record quarterly revenue.

Analyst Jeff Osborne (TD Cohen): Got it. And then maybe last one quickly for you, just CapEx for the year. Should we think about 50 plus million or what's the expectation? Apologies, don't give guidance beyond the quarter.

Management: I think we gave guidance for just Q1 and just speak broadly about Q1 in general. We talked about the HVM2 line. We've already started placing some orders for some of the long lead, but we'll reevaluate all of our plans now with KH, who's in this new role of head of operations, who's wonderful to work with, and we'll just be smart and prudent how we phase those orders out over the year.

Analyst Bill Peterson (JPMorgan): Hi, good afternoon. Thanks for all the information. I wanted to come back to the question about your Korean operations. Can you give us a sense for what the combined, the two, Route Jade and the other one, can support in terms of megawatt hours or revenue? Just trying to get a sense of the run rate you could support at sort of max capacity. And then how much capacity do you plan to add? Can you give us any sort of sense on what investment you're considering?

Management: Sure. I'll go. Again, with that, we haven't given out specific numbers in terms of megawatts, but I think we've talked publicly about how this is a facility that will support significantly higher revenue streams, maybe 2x, and we're making decisions in terms of deploying capital right now, which would incrementally add to that. Again, I don't want to quote an exact number. But we recognize what a great opportunity we have here, some of these markets that we've talked to, and we've got a great team to support.

So we're starting to invest dollars. But again, I think you can see the type of numbers that we've invested in Korea over the last couple of years compared to the dollars that we're investing in PEP2. They're relatively small, but they're really important in terms of the ROI that they can return, both in terms of dollars and strategic return.

Management: Yeah, one other call I'd add is we have a much larger facility now. Like I said, we have a fairly large facility that we acquired with a lot of machines. So we will be adding incrementally and in a scalable manner. So some of it that we acquired is usable. For example, we have a huge quarter that we acquired from there that the coating, we don't have to add new capacity and quarter is very expensive. But then we can add more to the dicing and stacking in a scalable manner.

So we don't have to do it all at once. The facility is there so we can prudently add it as and when we see the demand and the qualifications materialize. So it's been very fortunate that we got this facility and now the demand is coming to us.

Analyst: I appreciate that. And then coming to the key, I guess, your first smartphone customer, trying to get a sense for the key learnings from the chemistry reformulation process. And how many more, I guess, options do you have with this customer? And you gave, I guess, a pretty clear example of cycle life. I guess, is there differences and requirements between cycles, the various customers, anything you can kind of give us to better understand what, I guess, opportunities you have ahead.

Management: Yeah, I mean, look, the learning here is this for me. I think the learning is, you know, we wanted to give a lot more color on this call, you know, and our report on exactly what it is. And what we've learned over this is the smartphone requirements are very, very difficult because this is the largest market for portable batteries and consumer electronics. Great margins because they provide clear value. Huge time.

But when you... When you make a battery for that, the rest of the markets are much easier because he's the toughest one. And to replace an existing graphite battery and existing graphite battery ecosystem with 100% silicon anode battery, one is meeting all the requirements. Second is helping and learning with the customers on accelerated tests or other tests that they've put together have to be updated a little bit for this particular kind of technology.

It's kind of like thinking about... When you started to add, I don't know, I remember in my past, we added fingerprint sensors to phones. So now you go to Face ID. It's completely different, right? So it's still a biometric authentication system, but the test cases are different and the way it uses is different. So whenever you introduce a new technology, you have to work with the customer in enabling that.

The reason that the customers are interested in, although it's different, is because we can provide an energy density roadmap that's not possible to do by just graphite batteries. And that is an absolute requirement. As I mentioned when I first took this job, the AI use case is only getting more and more, and the demands are getting higher and higher. Now, as I mentioned, I think a few calls ago that I expect these batteries to go to 10,000 milliamp hours, and now you see that.

And they can't keep getting bigger because the phones can't get any bigger. So the customers are highly motivated to help us get this technology to market. But when you totally change the graphite anode to silicon anode, we have to work with them to make that to qualify. So if you look at the progress we made, it's tremendous. I mean, I think we showed, we have specs of like 75 different specs and we pass most of them. So we are converging and, you know, it's been a fantastic learning, but at the same time, other markets like, like I wear are much easier to do because of this.

And there's so many other markets like that, that are much easier. Like, you know, if you think about wearable cameras and so many other markets where AI at the edge is really creating, they're great opportunities for us once we get this smartphone battery done or even before as we've gained a lot of technology advancements in the last few years working with our smartphone customers.

Analyst Derek Soderberg (Cantor Fitzgerald): Yeah. Hey guys, thanks for taking the questions. I was curious if switching out the dicing technology sort of resets any part of the battery qualification process. You know, obviously your customers want to make sure you guys can scale and, you know, putting aside any of the cycle life testing, you know, might the change to the dicing technology push back that qualification process at all?

Management: You know, look, anytime you have a customer qualify one particular product, if you change some steps within it, we will need to communicate what those steps are and what it changes, and we will need to run some form of qualification again. That's just the way it is, even when you move from one flap to the other, you got to do that.

But the way we would do it is these are all by different zones. For example, dicing is zone zero and then zone one, zone one, and then stacking is zone two. So there's many ways in my experience, we've done this. We established eco blends. We show similar performance. We can do a subset of the qual. So there's many different ways to do it, but it's still a little bit early right now.

You know, we're doing laser dicing on all of them. When we do some other form of dicing, we'll work with the customers to gradually phase it in.

Analyst Derek Soderberg (Cantor Fitzgerald): Got it. And then just a quick follow-up. Are there any remaining technical milestones to shipping commercial volumes in the back half of the year for the augmented reality market? Thanks.

Management: Any technical milestones, was there a question?

Analyst Derek Soderberg (Cantor Fitzgerald): Yeah, so, I mean, look, we now have seen the products from our customers with our battery in them. Very exciting. You know, we saw a few at CES. We saw a lot more in private demos. The performance is fantastic. They really like it. They really like what it's able to do and what the AI is able to do.

We don't see any big technical obstacles. But this is a new market. It's a new application. So the applications are evolving. So they're doing testing of different applications. And as and when they find them, we'll figure out how to adjust it. We did learn about one thing after we first sampled in terms of how to... different rates and different pulses and so on. And we quickly adapted that. And now we have a new battery that meets that.

So my team is very capable of quickly reacting to those now. But right now, the battery we have, we feel meets all the requirements. That's why we got a production PO.

Analyst Alec Valera (Loop Capital): Hey, guys. Thank you for taking my question. This is Alec on Fernanda. So my first question is, what is a good way to think about the cadence of testing and production over the next few years for smartphone, eyewear, PCs, and drones? Additionally, what do the capacity needs look like over that timeframe? I have a quick follow-up.

Analyst Alec Valera (Loop Capital): A cadence of testing. How do you mean by that? Maybe you can ask a little bit better in terms of timing, you mean, how long it takes or...

Management: Yeah, I guess what's the timing of the phases of testing?

Management: Yeah, so my experience in the last three years has been that typically we provide a standard size cell to the customers, that one we have, and they give us a set of requirements in terms of cycle life, energy density, you know, rate of charge, discharge, swelling requirements, and so on. And they'll do a bench level test of that. That takes a few months. When they're comfortable with that, they come back to us and ask us, hey, we w