ENOVIX CORPORATION The following discussion and analysis provide information that the management ofEnovix Corporation . (referred as to "we," "us," "our" and "Enovix") believes is relevant to an assessment and understanding of theEnovix's consolidated results of operations and financial condition as ofOctober 3, 2021 and for the quarter ended and 39-week period endedOctober 3, 2021 and should be read together with the condensed consolidated financial statements that are included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contain forward-looking statements based upon our current expectations, estimates and projections that involve risks and uncertainties. Actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q. Business Overview We design, develop, and plan to commercially manufacture an advanced silicon-anode lithium-ion battery using our proprietary 3D cell architecture that increases energy density and maintains high cycle life. This enables us to use silicon as the only active lithium cycling material in the anode. We have applied an equally innovative approach to develop proprietary roll-to-stack production tools that 'drop-in' to existing lithium-ion battery manufacturing lines and increase megawatt hour capacity. Our silicon anode battery architecture allows lithium-ion batteries to be produced smaller, cheaper, and more efficiently than current alternatives. To date, we have concentrated our operational effort on researching and developing the cutting-edge technology behind our silicon-anode lithium-ion battery. Over the past several years, we have signed agreements to provide engineering and proof of concept samples to blue-chip companies in the consumer electronic industry (smartwatches, augmented reality/virtual reality, smartphones, fire/life/safety radios, laptops). In addition to those industries, we are pursuing the deployment of our technology with leading international automobile manufacturers to develop patented battery technology for the electric vehicle ("EV") market.
We currently lease our headquarters, engineering and manufacturing space in
Impact of Coronavirus ("COVID-19")
We closely monitor the impact of the pandemic of COVID-19 on all aspects of our business, including how it will impact our operations. We have considered potential impacts of the COVID-19 pandemic on our critical and significant accounting estimates and have not incurred any impairment losses in the carrying value of our assets as a result of the COVID-19 pandemic. For information on our operations and risks related to health epidemics, including the COVID-19 pandemic, please see the other risks and uncertainties set forth in the section titled "Risk Factors" and elsewhere in this Quarterly Report on Form 10-Q.
Change in Fiscal Year
OnSeptember 28, 2021 , the audit committee of the Board of Directors of the Company approved a change in the fiscal year end from a year ending onDecember 31 to a fiscal year calendar typically consisting of four 13-week quarters, with the change to be effective for the Company's third quarter beginning onJuly 1, 2021 and ending onOctober 3, 2021 . The Company's current fiscal year will end onJanuary 2, 2022 . The Company's 2022 fiscal year will be comprised of four fiscal quarters ending onApril 3, 2022 ,July 3, 2022 ,October 2, 2022 andJanuary 1, 2023 , respectively. The updated calendar will occasionally include a 14-week fourth quarter, which will first occur in fiscal year 2025, starting onSeptember 29, 2024 and ending onJanuary 5, 2025 .Enovix is making the fiscal year change on a prospective basis and will not adjust operating results for prior periods.
Business Combination and Public Company Costs
OnJuly 14, 2021 (the "Closing Date"), Legacy Enovix, RSVAC, andRSVAC Merger Sub Inc. , aDelaware Corporation and wholly owned subsidiary of RSVAC ("Merger Sub"), consummated the closing of the transactions contemplated by the Agreement and Plan of Merger, datedFebruary 22, 2021 (the "Merger" or the "Business Combination"), by and among RSVAC, Merger Sub and Legacy Enovix (the "Merger Agreement"), following the approval at a special meeting of the stockholders of RSVAC held onJuly 12, 2021 (the "Special Meeting"). Following the consummation of the Merger on the Closing Date, Legacy Enovix changed its name toEnovix Operations Inc. , and RSVAC changed its name fromRodgers Silicon Valley Acquisition Corp. toEnovix Corporation ("Enovix ").Enovix raised approximately$373.7 million of net proceeds, after deducting transaction costs and estimated offering related expenses. Please refer to Note 3 "Business Combination" of Part I of this Quarterly Report on Form 10-Q for further details of the Business Combination. LegacyEnovix is the accounting predecessor andEnovix is the successorSEC registrant, which means that Legacy Enovix's consolidated financial statements for previous periods will be disclosed in Envoix's future periodic reports filed with theSEC . 20
-------------------------------------------------------------------------------- While the legal acquirer in the merger agreement is RSVAC, for financial accounting and reporting purposes under GAAP, Legacy Enovix is the accounting acquirer and the merger has been accounted for as a "reverse recapitalization." A reverse recapitalization did not result in a new basis of accounting, and the financial statements of theEnovix represents the continuation of the consolidated financial statements of Legacy Enovix. Under this method of accounting, RSVAC was treated as the "acquired" company for financial reporting purposes. Accordingly, the consolidated assets, liabilities and results of operations of Legacy Enovix become the historical financial statements ofEnovix , and RSVAC's assets, liabilities and results of operations were consolidated with Legacy Enovix beginning on the acquisition date. Operations prior to the closing of the merger were presented as those ofEnovix in future reports. The net assets of RSVAC were recognized at historical cost (consistent with carrying value), with no goodwill or other intangible assets recorded related to the Business Combination. The most significant changes inEnovix's reported financial position as a result of the merger are an increase in cash and cash equivalents and a net impact in total stockholders' deficit (as compared to Legacy Enovix's condensed consolidated balance sheet as ofJune 30, 2021 ). Please refer to Note 3 "Business Combination" of Part I of this Quarterly Report on Form 10-Q for further details of the Business Combination. Upon consummation of the Merger,Enovix became the successor to RSVAC, anSEC -registered and listed company, which requires us to hire additional personnel and implement procedures and processes to address public company regulatory requirements and customary practices. We expect to incur additional annual expenses as a public company for, among other things, directors' and officers' liability insurance, director fees and additional internal and external accounting and legal and administrative resources, including increased audit and legal fees.
Comparability of Financial Information
Our future results of operations and financial position may not be comparable to historical results as a result of the Merger.
Key Trends, Opportunities and Uncertainties
We generate revenue from payments received from our customers based on executed engineering revenue contracts (the "Service Revenue") for the development of silicon-anode lithium-ion battery technology. We have not commenced commercial manufacturing of our batteries, and thus, no product revenue has been generated to date. Our performance and future success depend on several factors that present significant opportunities, but also pose risks and challenges as described in the section titled "Risk Factors" included elsewhere in this Quarterly Report on Form 10-Q.
Product Development
We have developed and delivered standardized sample (i.e., prototype) batteries to multiple, industry leading consumer electronics manufacturers. External validation of the performance of these samples has led to several Service Revenue contracts between us and these customers. Pursuant to each of these agreements, we are developing custom 3D silicon lithium-ion batteries for specific wearable, mobile computing and communication device applications. The design and development phases and the manufacturing of these custom samples are performed at our headquarters inFremont, California .
Commercialization
Currently, we are building out our first high volume production line ("Fab-1")
at our headquarters in Fremont, California . The net proceeds from the Merger
enables us to complete and further expand Fab-1, pursue a second manufacturing
location ("Fab-2"), accelerate research and development, and undertake
additional initiatives.
Market Focus
We are initially focused on the consumer electronic market and recognize that our battery technology has applicability in other large and growing markets, including EV's. Access to Capital Assuming we experience no significant delays in the research and development of our battery, we believe that our cash resources, including the net proceeds from the completion of the Merger, are sufficient to fund the continued build out and production ramp of our Fab-1 manufacturing facility inFremont, California and lease or purchase and retrofit an existing facility elsewhere as our Fab-2 for growth. Regulatory Landscape
We operate in an industry that is subject to many established environmental
regulations, which have generally become more stringent over time, particularly
in hazardous waste generation and disposal and pollution control. While we
expect certain regulations under
21
--------------------------------------------------------------------------------Components of Results of Operations
Service Revenue
Service Revenue contracts generally include the design and development efforts to conform our existing battery technology with the customer's required specifications. Consideration for Service Revenue contracts generally becomes payable when we meet specific contractual milestones, which include the design and approval of custom cells, procurement of fabrication tooling to meet the customer's specifications, and fabrication and delivery of custom cells from our pilot production line. Within the existing Service Revenue contracts, the amount of consideration is fixed, the contracts contain a single performance obligation, and revenue is recognized at the point in time the final milestone is met (i.e., a final working prototype meeting all required specifications) and the customer obtains control of the deliverable. During all periods presented, we did not recognize any Service Revenue as final milestones were not yet met. Total Cost and Expenses Cost of Revenue
Cost of revenue includes materials, labor, allocated depreciation expense, and other direct costs related to Service Revenue contracts. Labor consists of personnel-related expenses such as salaries and benefits, and stock-based compensation.
Capitalization of certain costs are recognized as an asset if they relate directly to a customer contract, generate or enhance resources of the entity that will be used in satisfying future performance obligations, and are expected to be recovered. If these three criteria are not met, the costs are expensed in the period incurred. Deferred costs are recognized as cost of revenue in the period when the related revenue is recognized.
Research and Development Expenses
Research and development expenses consist of engineering services, allocated facilities costs, depreciation, development expenses, materials, labor and stock-based compensation related primarily to our (i) technology development, (ii) design, construction, and testing of preproduction prototypes and models, and (iii) certain costs related to the design, construction, and operation of our pilot plant that is not of a scale economically feasible to us for commercial production. Research and development costs are expensed as incurred. To date, research and development expenses have consisted primarily of personnel-related expenses for scientists, experienced engineers and technicians as well as costs associated with the expansion and ramp up of our engineering and manufacturing facility inFremont, California , including the material and supplies to support the product development and process engineering efforts. As we ramp up our engineering operations to complete the development of batteries and required process engineering to meet customer specifications, we anticipate that research and development expenses will increase significantly for the foreseeable future as we expand hiring of scientists, engineers, and technicians and continue to invest in additional plant and equipment for product development, building prototypes, and testing of batteries. We are establishing a research and development center inIndia that will initially focus on developing machine learning algorithms.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses consist of personnel-related expenses, marketing expenses, allocated facilities expenses, depreciation expenses, executive management travel, and professional services expenses, including legal, human resources, audit, accounting and tax-related services. Personnel related costs consist of salaries, benefits and stock-based compensation. Facilities costs consist of rent and maintenance of facilities.
We are expanding our personnel headcount to support the ramping up of commercial manufacturing and being a public company. Accordingly, in addition to non- recurring costs associated with the Business Combination and anticipated costs of being a public company, we expect our selling, general and administrative expenses to increase significantly in the near term and for the foreseeable future.
Other Income (Expense), net
Other income and expenses, net primarily consist of interest expense, fair value adjustments for outstanding convertible preferred stock warrants, common stock warrants, and convertible promissory notes, the issuance of convertible preferred stock warrants, and loss on early debt extinguishment.
Income Tax Expense (Benefit)
Our income tax provision consists of an estimate for
22
--------------------------------------------------------------------------------Results of Operations
Comparison of Quarter Ended
The following table sets forth our condensed consolidated operating results for
the periods presented below (in thousands, except share and per share amount):
Quarter Ended Three Months Ended
October 3, 2021 September 30, 2020 Change ($) % Change
Operating expenses:
Cost of revenue $ 104 $ 1,153 $ (1,049 ) (91 %)
Research and development 10,301 3,807 6,494 171 %
Selling, general and
administrative 8,791 1,486 7,305 492 %
Total operating expenses 19,196 6,446 12,750 198 %
Loss from operations (19,196 ) (6,446 ) (12,750 ) 198 %
Other income (expense):
Change in fair value of
convertible preferred
stock warrants and common
stock warrants 8,460 (7,031 ) 15,491 (220 %)
Interest income, net (52 ) - (52 ) N/M
Other (expense) income,
net (50 ) 1 (51 ) N/M
Total other income
(expense), net 8,358 (7,030 ) 15,388 (219 %)
Net loss $ (10,838 ) $ (13,476 ) $ 2,638 (20 %)
N/M - Not meaningful
Cost of Revenue
Cost of revenue for the quarter ended October 3, 2021 was $0.1 million , compared
to $1.2 million during the three months ended September 30, 2020 . From time to
time, we enter into Service Revenue customer contracts. Service Revenue from
these customer contracts was deferred as of October 3, 2021 because we had not
delivered the final working prototype (the single performance obligation) nor
had the customer taken control of the deliverable. The estimated final delivery
date of these Service Revenue contracts is within the next twelve months.
In the execution of satisfying the single performance obligation per the
existing Service Revenue contracts, certain costs are recognized as an asset if
they relate directly to a customer contract, generate or enhance resources of
the entity that will be used in satisfying future performance obligations, and
are expected to be recovered. If these three criteria are not met, the costs are
expensed in the period incurred. Deferred contract costs are recognized as cost
of revenue in the period when the related revenue is recognized.
The decrease in cost of revenue of $1.0 million , or (91%) was due to the timing
of when costs attributable to a specific contract with a customer were incurred.
As of October 3, 2021 , we had $4.4 million of deferred contract costs and $7.8
million of deferred revenue on our condensed consolidated balance sheet.
Research and Development Expenses
Research and development expenses for the quarter endedOctober 3, 2021 were$10.3 million , compared to$3.8 million during the three months endedSeptember 30, 2020 . The increase of$6.5 million , or 171% was primarily attributable to an increase in our research and development employee headcount resulting in a$3.5 million increase in salaries, employee benefit and stock-based compensation expenses. The remaining increase of$3.0 million was primarily due to increased facility, tooling costs, research and development materials, telecommunication and IT services expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the quarter endedOctober 3, 2021 were$8.8 million , compared to$1.5 million during the three months endedSeptember 30, 2020 . The increase of$7.3 million , or 492% was primarily attributable to an increase in our selling, general and administrative employee headcount resulting in a$4.2 million increase in salaries, employee benefit and stock-based compensation expenses. The remaining amount of additional expenses is primarily comprised of an increase in professional fees and recruiting expenses of$0.9 million , an increase in insurance expenses of$0.5 million , an increase in legal fees and permits expense of$0.4 million , an increase in facility and technology expenses of$0.4 million and an increase in marketing and investor relations expenses of$0.4 million . 23 --------------------------------------------------------------------------------
Change in Fair Value of Convertible Preferred Stock Warrants and Common Stock Warrants
The change in the fair value of the convertible preferred stock warrants and common stock warrants was primarily attributable to a decreased fair value of$8.5 million relating to the Private Placement Warrants assumed in the Business Combination during the quarter endedOctober 3, 2021 , and an increased fair value of$7.0 million of the Legacy Enovix convertible preferred stock warrants resulting from an increase in Legacy Enovix's enterprise value during the three months endedSeptember 30, 2020 . The change in the fair value of the convertible preferred stock warrants and common stock warrants was recorded as other income (expense), net.
Comparison of 39-Week Period Ended
The following table sets forth our condensed consolidated operating results for
the periods presented below (in thousands, except share and per share amount):
39-Week Period
Ended October 3, Nine Months Ended
2021 September 30, 2020 Change ($) % Change
Operating expenses:
Cost of revenue $ 1,847 $ 2,382 $ (535 ) (22 %)
Research and development 25,413 9,442 15,971 169 %
Selling, general and
administrative 17,500 3,766 13,734 365 %
Total operating expenses 44,760 15,590 29,170 187 %
Loss from operations (44,760 ) (15,590 ) (29,170 ) 187 %
Other income (expense):
Change in fair value of
convertible preferred
stock warrants and common
stock warrants 3,679 (6,756 ) 10,435 (154 %)
Issuance of convertible
preferred stock warrants - (1,476 ) 1,476 N/M
Change in fair value of
convertible promissory
notes - (2,422 ) 2,422 N/M
Interest income, net (187 ) (107 ) (80 ) 75 %
Other (expense) income,
net (38 ) 43 (81 ) N/M
Total other income
(expense), net 3,454 (10,718 ) 14,172 (132 %)
Net loss $ (41,306 ) $ (26,308 ) $ (14,998 ) 57 %
N/M - Not meaningful
Cost of Revenue
Cost of revenue for the 39-week period ended October 3, 2021 was $1.8 million ,
compared to $2.4 million during the nine months ended September 30, 2020 . From
time to time, we enter into Service Revenue customer contracts. Service Revenue
from these customer contracts was deferred as of October 3, 2021 because we had
not delivered the final working prototype (the single performance obligation)
nor had the customer taken control of the deliverable. The estimated delivery
date of these Service Revenue contracts is within the next twelve months.
In the execution of satisfying the single performance obligation per the
existing Service Revenue contracts, certain costs are recognized as an asset if
they relate directly to a customer contract, generate or enhance resources of
the entity that will be used in satisfying future performance obligations, and
are expected to be recovered. If these three criteria are not met, the costs are
expensed in the period incurred. Deferred contract costs are recognized as cost
of revenue in the period when the related revenue is recognized.
The decrease in cost of revenue of $0.5 million , or (22%) was due to the timing
of when costs attributable to a specific contract with a customer were incurred.
As of October 3, 2021 and December 31, 2020 , we had $4.4 million and $3.5
million , respectively, of deferred contract costs and $7.8 million and $5.5
million , respectively, of deferred revenue on our condensed consolidated balance
sheets.
Research and Development Expenses
Research and development expenses for the 39-week period endedOctober 3, 2021 were$25.4 million , compared to$9.4 million during the nine months endedSeptember 30, 2020 . The increase of$16.0 million , or 169% was primarily attributable to an increase in our research and development employee headcount resulting in a$10.7 million increase in salaries, employee benefit and stock-based 24 --------------------------------------------------------------------------------
compensation expenses. The remaining increase of
Selling, General and Administrative Expenses
Selling, general and administrative expenses for the 39-week period endedOctober 3, 2021 were$17.5 million , compared to$3.8 million during the nine months endedSeptember 30, 2020 . The increase of$13.7 million , or 365% was primarily attributable to an increase in our selling, general and administrative employee headcount resulting in a$6.6 million increase in salaries, employee benefit and stock-based compensation expenses. The remaining increase of$7.1 million is primarily comprised of a$3.0 million increase in professional fees and recruiting expenses, a$1.5 million increase in legal fees, which partially was incurred in connection with the Business Combination, a$0.8 million increase in marketing expenses, and a$0.5 million increase in insurance expenses.
Change in Fair Value of Convertible Preferred Stock Warrants and Common Stock Warrants
The net change in fair value of convertible preferred stock warrants and common stock warrants of$10.4 million for the 39-week period endedOctober 3, 2021 was primarily attributable to a decrease in fair value of$8.5 million of common stock warrants assumed in the Business Combination during the third quarter of 2021, offset by an increased fair value of$4.8 million of convertible preferred stock warrants and an increased fair value of$7.0 million of the Legacy Enovix convertible preferred stock warrants resulting from an increase in LegacyEnovix's enterprise value compared to the nine months endedSeptember 30, 2020 . OnFebruary 22, 2021 , all 10,160,936 Legacy Enovix's Series D convertible preferred stock warrants were exercised at$0.01 per share for a total of$0.1 million . The change in fair value of convertible preferred stock warrants and common stock warrants was recorded as other income (expense), net.
Issuance of Convertible Preferred Stock Warrants
On
Change in Fair Value of Convertible Promissory Notes
The change in fair value of the convertible promissory notes of$2.4 million for the nine months endedSeptember 30, 2020 was due to the fair value adjustment of the convertible promissory note in connection with the note conversion into 19,001,815 shares of Legacy Enovix Series P-2 convertible preferred stock inMarch 2020 . No such event occurred during the 39-week period endedOctober 3, 2021 . Non-GAAP Financial Measures While we prepare our condensed consolidated financial statements in accordance with GAAP, we also utilize and present certain financial measures that are not based on GAAP. We refer to these financial measures as "Non-GAAP" financial measures. In addition to our financial results determined in accordance with GAAP, we believe that EBITDA, and Adjusted EBITDA, and Free Cash Flow (each as defined below), are useful measures in evaluating our financial and operational performance distinct and apart from financing costs, certain non-cash expenses and non-operational expenses. These Non-GAAP financial measures should be considered in addition to results prepared in accordance with GAAP but should not be considered a substitute for or superior to GAAP. We endeavor to compensate for the limitation of the Non-GAAP financial measures presented by also providing the most directly comparable GAAP measures. We use Non-GAAP financial information to evaluate our ongoing operations and for internal planning, budgeting and forecasting purposes. We believe that Non-GAAP financial information, when taken collectively, may be helpful to investors in assessing our operating performance and comparing our performance with competitors and other comparable companies. You should review the reconciliations below but not rely on any single financial measure to evaluate our business. EBITDA and Adjusted EBITDA "EBITDA" is defined as earnings (net loss) adjusted for interest expense; income taxes; depreciation expense, and amortization expense. "Adjusted EBITDA" includes additional adjustments to EBITDA such as stock-based compensation expense; change in fair value of convertible preferred stock warrants, common stock warrants and convertible promissory notes; loss on early debt extinguishment and other special items as determined by management which it does not believe to be indicative of its underlying business trends. EBITDA and Adjusted EBITDA are intended as supplemental financial measures of our performance that are neither required by, nor presented in accordance with GAAP. We believe that the use of EBITDA and Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results, trends, and in comparing our financial measures with those of comparable companies, which may present similar Non-GAAP financial measures to investors. However, you should be aware that when evaluating EBITDA, and Adjusted EBITDA, we may incur future expenses similar to those excluded when calculating these measures. In addition, the presentation of these measures should not be construed as an inference 25 -------------------------------------------------------------------------------- that our future results will be unaffected by unusual or nonrecurring items. Our computation of EBITDA and Adjusted EBITDA may not be comparable to other similarly titled measures computed by other companies, because all companies may not calculate EBITDA and Adjusted EBITDA in the same fashion. Below is a reconciliation of net loss on a GAAP basis to the Non-GAAP EBITDA and Adjusted EBITDA financial measures for the periods presented below (in thousands): 39-Week Period Quarter Ended Three Months Ended Ended Nine Months Ended October 3, 2021 September 30, 2020 October 3, 2021 September 30, 2020 Net loss $ (10,838 ) $ (13,476 )$ (41,306 ) $ (26,308 ) Interest expense, net 52 - 187 107 Depreciation and amortization 687 147 1,062 436 EBITDA (10,099 ) (13,329 ) (40,057 ) (25,765 ) Stock-based compensation 3,042 81 6,717 197 Change in fair value of convertible preferred stock warrants and common stock warrants (8,460 ) 7,031 (3,679 ) 6,756 Issuance of convertible preferred stock warrants - - - 1,476 Change in fair value of convertible promissory notes - - - 2,422 Loss on early debt extinguishment 60 - 60 - Adjusted EBITDA $ (15,457 ) $ (6,217 )$ (36,959 ) $ (14,914 ) Free Cash Flow Below is a reconciliation of Net cash used in operating activities to the Free Cash Flow financial measures for the periods presented below (in thousands): 39-Week Period Ended Nine Months Ended October 3, 2021 September 30, 2020 Net cash used in operating activities $ (34,514 ) $ (15,531 ) Capital (expenditures) (31,509 ) (18,923 ) Free Cash Flow (1) $ (66,023 ) $ (34,454 )
(1) We define "Free Cash Flow" as (i) Net cash from operating activities less
(ii) capital expenditures, net of proceeds from disposals of property and
equipment, all of which are derived from our condensed consolidated
statements of cash flow. The presentation of non-GAAP Free Cash Flow is not
intended as an alternative measure of cash flows from operations, as
determined in accordance with GAAP. We believe that this financial measure
is useful to investors because it provides investors to view our performance
using the same tool that we use to gauge our progress in achieving our goals
and it is an indication of cash flow that may be available to fund
investments in future growth initiatives.
Liquidity and Capital Resources
We have incurred recurring operating losses and negative cash flows from operations since inception throughOctober 3, 2021 and expect to incur operating losses for the foreseeable future. As ofOctober 3, 2021 , we had cash and cash equivalents of$338.7 million , a working capital of$331.4 million and an accumulated deficit of$248.6 million . Prior to the Business Combination, we had financed our operations primarily from the sales of convertible preferred stock, borrowing from convertible promissory notes, borrowing from a secured promissory note (the "Secured Promissory Note"). In connection with the Business Combination inJuly 2021 , the Company raised approximately$373.7 million of net proceeds, after deducting transaction costs and estimated offering related expenses. Please refer to Note 3 "Business Combination" for further details of the Business Combination. For the 39-week period endedOctober 3, 2021 , we purchased$31.5 million for property and equipment. We will continue to increase our property and equipment purchases in the near future for supporting the build-out of our manufacturing facility and our battery manufacturing production. Based on the anticipated spending, cash received from the Business Combination and timing of expenditure assumptions, we currently expect that our cash will be sufficient to meet our funding requirements over the next twelve months. Going forward, we may require additional financing for our future operation expansion. 26 --------------------------------------------------------------------------------
The following table provides a summary of cash flow data for the periods presented below (in thousands):
39-Week Period Ended Nine Months Ended
October 3, 2021 September 30, 2020 Change ($)
Net cash used in operating
activities $ (34,514 ) $ (15,531 ) $ (18,983 )
Net cash used in investing
activities (31,509 ) (18,923 ) (12,586 )
Net cash provided by financing
activities 375,676 59,910 315,766
Change in cash, cash
equivalents and restricted
cash $ 309,653 $ 25,456 $ 284,197 39-Week Period Ended
Operating Activities
Our cash flows used in operating activities to date have been primarily comprised of operating expenses. We continue to increase hiring for employees in supporting the ramping up of commercial manufacturing and being a public company. We expect our cash used in operating activities to increase significantly before we start to generate any material cash inflows from commercially manufacturing and selling our batteries.
Net cash used in operating activities was$34.5 million for the 39-week period endedOctober 3, 2021 . Net cash used in operating activities consists of net loss of$41.3 million , adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments primarily include stock-based compensation expense of$6.7 million , depreciation and amortization expense of$1.1 million and the change in fair value of convertible preferred stock warrants of$3.7 million . Net cash used in operating activities was$15.5 million for the nine months endedSeptember 30, 2020 . Net cash used in operating activities consists of net loss of$26.3 million , adjusted for non-cash items and the effect of changes in working capital. Non-cash adjustments primarily include change in the fair value of the convertible promissory notes of$2.4 million , the change in the fair value of convertible preferred stock warrants of$6.8 million , the non-cash issuance of convertible preferred stock warrants of$1.5 million , depreciation and amortization expense of$0.4 million , stock-based compensation expense of$0.2 million , and non-cash interest expense of$0.1 million .
Investing Activities
Our cash flows used in investing activities to date have been primarily comprised of purchases of property and equipment. We expect the costs to acquire property and equipment to increase substantially in the near future as we complete the build-out of our manufacturing facility for our battery manufacturing production. Net cash used in investing activities, which were primarily related to equipment purchases, was$31.5 million and$18.9 million for 39-week period endedOctober 3, 2021 and nine months endedSeptember 30, 2020 , respectively. Financing Activities Prior to the Business Combination, we had financed our operations primarily through the sale of convertible preferred stock, borrowing from convertible promissory notes, and borrowing from the Secured Promissory Note with a member of the board of directors. There were no sales of convertible preferred stock for the 39-week period endedOctober 3, 2021 . Net cash provided by financing activities was$375.7 million for the 39-week period endedOctober 3, 2021 , which primarily consisted of$405.2 million of proceeds from the Business Combination and the PIPE financing,$15.0 million of proceed from the borrowing of the Secured Promissory Note and$0.3 million of proceeds from the exercise of stock options and proceeds from the exercise of the convertible preferred stock warrants, which were offset by$29.6 million related to the transaction costs incurred in connection with the Business Combination and PIPE financing,$15.0 million repayment of Secured Promissory Note, and$0.1 million of debt issuance costs.
Net cash provided by financing activities was
Contractual Obligations and Commitments
We lease our headquarters, engineering, and manufacturing space inFremont, California under a single non-cancelable operating lease with an expiration date ofAugust 31, 2030 . We also lease a small office inFremont, California under a noncancelable operating lease that expires inApril 2026 with an option to extend the lease for five years. For the lease payment schedule, please see Note 6, 27
--------------------------------------------------------------------------------
Leases, of the notes to our condensed consolidated financial statements in Part I of this Quarterly Report on Form 10-Q for further information.
In addition, we enter into agreements in the normal course of business with various vendors, which are generally cancelable upon notice. Payments due upon cancellation consist only of payments for services provided or expenses incurred, including non-cancellable obligations of service providers, up to the date of cancellation. Those cancellable payments are not included in the table of contractual obligations below. See Note 8, Commitments and Contingencies, of the notes to our condensed consolidated financial statements in Part I of this Quarterly Report on Form 10-Q for further information. OnMay 24, 2021 , Legacy Enovix issued to a member of the board of directors the Secured Promissory Note with an aggregate principal balance of$15.0 million . The Secured Promissory Note bore interest at a rate of 7.5% per annum, payable monthly and on the maturity date. All unpaid interest and principal was due and payable upon request by the holders on or after the earlier of (i) the closing of the Merger Agreement and (ii)October 25, 2021 . OnJuly 14, 2021 , we paid off the Secured Promissory Note and its accrued interest by using$15.2 million of proceeds from the Business Combination.
Off-Balance Sheet Arrangements
As of
Emerging Growth Company Status
We are an emerging growth company ("EGC"), as defined in the Jumpstart Our
Business Startups Act of 2012 (the "JOBS Act"). Under the JOBS Act, an EGC can
delay adopting new or revised accounting standards issued subsequent to the
enactment of the JOBS Act until such time as those standards apply to private
companies.
In addition, we intend to rely on the other exemptions and reduce reporting
requirements provided by the JOBS Act. Subject to certain conditions set forth
in the JOBS Act, if, as an EGC, we intend to rely on such exemptions, we are not
required to, among other things: (i) provide an auditor's attestation report on
our system of internal controls over financial reporting pursuant to Section
404(b) of the Sarbanes-Oxley Act; (ii) provide all of the compensation
disclosure that may be required of non-emerging growth public companies under
the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) comply with
any requirement that may be adopted by the PCAOB regarding mandatory audit firm
rotation or a supplement to the auditor's report providing additional
information about the audit and the financial statements (auditor discussion and
analysis); and (iv) disclose certain executive compensation- related items such
as the correlation between executive compensation and performance and
comparisons of the Chief Executive Officer's compensation to median employee
compensation.
We will remain an EGC under the JOBS Act until the earliest of (i) the last day
of our first fiscal year following the fifth anniversary of the first sale of
our Common Stock in our initial public offering, (ii) the last date of our
fiscal year in which we have total annual gross revenue of at least $1.07
billion , (iii) the date on which we are deemed to be a "large accelerated filer"
under the rules of the SEC with at least $700.0 million of outstanding
securities held by non-affiliates, or (iv) the date on which have issued more
than $1.0 billion in non-convertible debt securities during the previous three
years.
Other than the adoption of Accounting Standards Codification 842, Leases, we
elected to use the extended transition period for complying with new or revised
accounting standards that have different effective dates for public and private
companies until the earlier of the date that we (i) are no longer an EGC or (ii)
affirmatively and irrevocably opts out of the extended transition period
provided in the JOBS Act. We elected to continue to utilize the extended
transition period. As a result, our condensed consolidated financial statements
may not be comparable to companies that comply with the new or revised
accounting pronouncements as of public company effective dates. The JOBS Act
does not preclude an EGC from adopting a new or revised accounting standard
earlier than the time that such standard applies to private companies. We expect
to use the extended transition period for any other new or revised accounting
standards during the period in which we remain an emerging growth company.
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