Enovix Corp (ENVX)

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis of financial condition and results of operations should be read together with the condensed consolidated financial statements and related notes thereto included elsewhere in this Quarterly Report on Form 10-Q. This discussion and analysis contains 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 in the section titled “Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.

Business Overview

We design, develop and manufacture advanced lithium-ion batteries, including our proprietary silicon-anode architecture that enables higher energy density and performance relative to conventional battery cells, particularly in space-constrained devices such as smartphones, smart eyewear and next generation AI-enabled devices. We have expanded our suite of battery offerings through acquisitions and now also manufacture conventional lithium-ion batteries, primarily serving customers in the defense and industrial sectors.

To date, we have concentrated our operational efforts on researching, developing and commercializing the next generation technology behind our silicon-anode lithium-ion battery cell architecture. We recently launched the AI-1TM product platform, our Artificial Intelligence ClassTM batteries for the next generation of mobile smartphones, smart eyewear and other AI-enabled devices that require significantly higher total energy storage and power to perform AI functions locally. We also serve customers in defense and industrial markets through our conventional and silicon-blended graphite battery products across a range of battery sizes and configurations optimized for high discharge rate applications, such as drones, subsea and munitions defense systems.

Drones represent a priority area of focus for us, as we believe our products provide a strong competitive advantage for serving customers that are increasingly prioritizing higher energy density, extended flight time, and supply-chain diversification. To support this anticipated growth, we have invested in additional capacity in our facility and launched MX-1, our first silicon-enhanced product platform, which is designed for rugged applications requiring rapid discharge and high gravimetric energy density. Finally, in addition to the smartphone, smart eyewear and defense and industrial markets, we are pursuing deployment of our technology across other edge-AI applications, as well as computing and EVs, among others.

We currently lease several facilities, including our headquarters in Fremont, California, and our manufacturing facility in Malaysia. Our manufacturing operations are conducted in Malaysia and South Korea, supporting both our next-generation silicon-anode platform and our conventional lithium-ion battery products. We have transitioned our prior U.S. pilot manufacturing activities to Malaysia and continue to focus on manufacturing execution, operational efficiency, and capacity planning to support commercialization efforts. Our research and development activities are conducted primarily in California, India, and South Korea and are focused on cell architecture, materials integration, and manufacturing process optimization. We also recently opened a sales office in Shenzhen, China.

Key Trends, Opportunities and Uncertainties

We generate revenue from the sale of batteries and battery pack products. As we continue to commercialize our battery technologies and expand our product offerings, our operating results and future growth will depend on, among other factors, the successful qualification and adoption of our products by customers, our ability to scale manufacturing efficiently, and the development of demand across our target markets. These factors present significant opportunities as well as risks and uncertainties, as described below and in the section titled “Risk Factors” included elsewhere in this Quarterly Report on Form 10-Q.

Smartphones

Advanced smartphone qualification continues with our lead smartphone original equipment manufacturer (“OEM”) customer. During the second quarter of 2026, our lead smartphone customer confirmed that our batteries passed more than 1,000 cycles under the 0.2C discharge cycle test. The final accelerated cycle-life testing is underway built around a hybrid protocol defined in close collaboration with the customer and designed for silicon-anode cells. This hybrid approach, which replaced the traditional 0.7C test used for legacy graphite batteries, consists of multiple test protocols across a range of charge and discharge conditions, with testing durations differing by variant mix. The lead

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customer is currently evaluating our cells, including an enhanced design, across these multiple variants. We anticipate completing this final test in the fourth quarter of 2026, with targeted system-level field testing to follow.  Our second smartphone OEM customer continues moving toward a similar qualification framework, following a path parallel to that of our lead customer. We expect to begin sample deliveries to this customer in the fourth quarter of 2026.

Smart Eyewear

In smart eyewear, we continued to make significant progress toward broader commercialization during the second quarter of 2026. Following the start of commercial production in the first quarter, we shipped approximately 2,100 silicon-anode AI-1 batteries and recognized initial smart eyewear product revenue under a customer order for 50,000 packs for delivery in 2026. We also completed key international safety certifications and customer reliability testing. The customer has since issued delivery orders for approximately 19,000 packs for third-quarter delivery, and we expect to fulfill the balance of the order in the fourth quarter of 2026, with shipment volumes expected to grow in 2027 as downstream deployments are projected to expand.

Drones, Defense and Industrial

Demand across our drone, defense and industrial end markets continued to expand during the second quarter of 2026. Our global pipeline for products manufactured at our South Korea facility grew approximately 41% to approximately $183 million, up from $130 million at the end of the first quarter, with more than half the growth driven by drone opportunities. This pipeline represents our estimate of the peak annual production value of identified design opportunities and does not represent contracted or committed revenue. The timing and extent to which these opportunities convert into revenue will depend on a number of factors, including our ability to satisfy customer qualification requirements, secure design wins and scale production to meet customer demand, and some or all of these opportunities may not ultimately result in revenue.

We believe our established manufacturing operations in South Korea position us to address demand for high-performance drone batteries that meet applicable U.S. government sourcing requirements, including under the National Defense Authorization Act (NDAA) and the Trade Agreements Act (TAA), which we expect to exceed available industry supply through the end of the decade. Subsequent to quarter end, our drone battery passed UN 38.3 transportation testing, completing a key certification required for commercial shipment, and we commenced sampling to numerous customers. We are also continuing the previously announced capacity expansion at our South Korea facility, with new capacity expected to come online in mid-2027.

Manufacturing Readiness and Technology

During the second quarter of 2026, we continued to make progress improving manufacturing execution and yields at Fab2. In smart eyewear production, substantially all process steps outside of Zone 1 achieved yields of 95% or greater, while Zone 1 dicing, which remains a key throughput driver across our smartphone and smart eyewear production lines, delivered step-level yield of approximately 84% in the second quarter, up from approximately 80% in the prior quarter. We continue to implement manufacturing improvements intended to increase throughput and reduce costs, including a hybrid dicing configuration that combines laser and mechanical dicing, as well as further simplification of the manufacturing flow. Multiple key dicing steps are expected to come online around the end of 2026. Achieving the yield, throughput and cost levels necessary to support manufacturing at scale remains an important execution priority, and the timing and expected benefits of these initiatives remain subject to manufacturing and operational risks.

In parallel with these manufacturing initiatives, we continued to advance our product and technology roadmap across our targeted end markets. We have begun customer sampling of our next-generation AI-2TM battery for smart eyewear, which is expected to deliver significantly higher volumetric energy density than AI-1. The underlying technology innovations are also expected to support a step-function in performance gains for our future smartphone batteries. We also continued to advance our technology roadmap for products manufactured at our South Korea facility, including MX-2TM, the next generation of our MX-1TM drone cell, which remains targeted for 2027.

Global Risks.

Our manufacturing operations in Malaysia and South Korea, and our supply chain for raw materials and components, are subject to evolving trade policies, tariffs, export restrictions, and geopolitical tensions. We face risks related to significant changes in United States trade policy, including tariffs on products imported from China and other

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countries and potential retaliatory actions by those countries. Escalating geopolitical tensions, changes in tariff regimes affecting components sourced from or processed in China, or disruptions to our Malaysia-based manufacturing operations could increase our cost of production and adversely affect our margins and competitive position. Although we do not currently anticipate a material change in risk to our near-term outlook from the existing trade environment, the extent and future outcome of these global risks are highly unpredictable and uncertain and may adversely affect our future financial condition, results of operations, and cash flows.

Components of Results of Operations

Revenue

In June 2022, we began to generate revenue from our Fab1 in Fremont, California. In October 2023, we acquired Routejade, a manufacturer of electrode coating and battery packs for customers worldwide. We recognize revenue within the scope of Accounting Standards Codification (“ASC”) 606, Revenue from Contracts with Customers.

Our revenue consists of product revenue, resulting from the sale of lithium-ion batteries and battery pack products (“Product Revenue”) to customers. Product Revenue is recognized once we have satisfied the performance obligations as defined in the sales agreement, which is generally satisfied upon transfer of control of goods. Control is transferred upon delivery of the product. For certain customized products with customer acceptance criteria specified in the sales agreement, the performance obligations are generally satisfied upon our customer’s acceptance. Payment terms can vary depending on the contract and it is generally required within 90 days or less from the delivery date or the acceptance date of our product. The amount of revenue recognized reflects the consideration for the product sold.

Cost of Revenue

Cost of revenue includes materials, labor, depreciation and amortization expense, freight costs and other direct costs related to manufacturing our products and service c

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Results of Operations

Comparison of Fiscal Year 2025 to Prior Fiscal Year 2024

The following table sets forth our consolidated operating results for the periods presented below (in thousands, except percentages).

N/M - not meaningful

Revenue

Revenue for fiscal years 2025 and 2024 were $31.8 million and $23.1 million, respectively. Revenue in both years primarily resulted from the product shipments from our facility in South Korea, which was acquired in October 2023. Revenue for fiscal year 2024 and 2025 revenue reflected product shipments to South Korea defense contractors and industrial and consumer electronics customers.

The $8.7 million, or 38%, increase in revenue compared to fiscal year 2024 was primarily attributable to higher shipment volumes to South Korean defense contractors, partially offset by changes in customer mix. Of the $8.7 million increase in revenue, $7.3 million of that increase was derived from higher shipment volumes to a South Korean defense contractor, and the remaining increase was attributable to higher shipment volumes to industrial and consumer electronics customers.

Cost of Revenue

Cost of revenue for the fiscal year 2025 was $25.7 million, compared to $25.1 million for the fiscal year 2024. The increase of $0.6 million, or 2%, was primarily attributable to higher production volumes in fiscal year 2025, including increased labor costs of $1.3 million and additional manufacturing costs associated with higher revenue. With no production in Fab1 and minimal production in Fab2 in fiscal year 2025 and 2024, a majority of the factory expenses

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associated with Fab1 and Fab2 were classified as research and development expenses instead of cost of revenues in fiscal year 2025 and 2024. The transition from Fab1 to Fab2 was a part of the 2023 and 2024 Restructuring Plans (as defined in Note 15 “Restructuring Costs” of our Consolidated Financial Statements included in this Annual Report). These restructuring plans also included U.S. workforce reductions in the fourth quarter of fiscal year 2023 and the second half of fiscal year 2024. These increases were partially offset by the absence of a $1.9 million non-recurring inventory step-up amortization recorded in fiscal year 2024 related to the Routejade acquisition.

In addition, we anticipate our factory expenses will increase as we continue to ramp up our Fab2 manufacturing operations.

Research and Development Expenses

Research and development expenses for the fiscal year 2025 were $110.3 million, compared to $124.5 million for the fiscal year 2024. The decrease of $14.2 million, or 11%, was primarily attributable to a $23.5 million decrease in depreciation expense, reflecting the absence of accelerated depreciation recorded in fiscal year 2024 in connection with the Fab1 decommissioning, as well as lower salaries, payroll taxes and benefits resulting from reduced U.S. headcount.

These decreases were partially offset by higher research and development spending in Asia, including a $29.3 million increase in research and development expenses in Malaysia, driven by a $3.2 million increase in salaries and benefits due to higher headcount, increased materials and tooling costs, higher depreciation associated with equipment placed into service, and increased information technology and facility related costs.

There were no executive departure-related charges recorded in fiscal year 2025 comparable to those incurred in prior years.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the fiscal year 2025 were $73.0 million, compared to $74.3 million for the fiscal year 2024. The decrease of $1.3 million, or 2%, was primarily attributable to a $9.4 million decrease in stock-based compensation expense, a $6.4 million decrease in salaries, payroll taxes and benefits resulting from reduced U.S. headcount, a $2.4 million decrease in professional fees, a $1.2 million decrease in facilities and equipment related costs, a $1.1 million decrease in insurance expense, and a $0.5 million decrease in depreciation expense related to the discontinuation of Fab1 operations.

These decreases were partially offset by a $7.9 million increase in legal fees, $1.4 million of warrant dividend transaction fees incurred during fiscal year 2025, $0.7 million of costs related to the SETK acquisition, a $1.2 million increase in information technology expenses related to software subscriptions and hardware, and higher selling, general and administrative expenses in Malaysia of $4.7 million, primarily driven by higher salaries and benefits due to increased headcount, higher depreciation expense from assets placed into service, and higher facility, utilities and general office expenses.

Restructuring Cost

There were no restructuring costs recorded during fiscal year 2025, compared to $41.8 million of restructuring costs recorded during fiscal year 2024. In May 2024, we initiated the 2024 Restructuring Plan (as defined in Note 15 “Restructuring Costs” of our Consolidated Financial Statements in this Annual Report) to relocate our Fab1 manufacturing operations in Fremont, California to Malaysia. The restructuring charges recorded during fiscal year 2024 consisted primarily of non-cash charges related to the disposal of Fab1 long lived assets, stock-based compensation expense, and cash charges for severance, termination benefits and other exit-related costs.

Change in Fair Value of Common Stock Warrants

For fiscal year 2025, the change in fair value of common stock warrants of $21.8 million was mainly attributable to a decrease in the fair value of the 5,500,000 Private Placement Warrants (as defined in Note 4 “Fair Value Measurement” of our Consolidated Financial Statements in this Annual Report). The decrease in fair value of Private Placement Warrants was primarily due to a decrease in our common stock price during the current year. In addition, there was a decrease in the number of warrants outstanding at the end of fiscal year 2024 as there was a warrant exercise of 500,000 shares during the fiscal year 2024.

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For fiscal year 2024, the change in fair value of common stock warrants of $12.2 million was attributable to a decrease in the fair value of the 5,500,000 Private Placement Warrants. The decrease in fair value of Private Placement Warrants was primarily due to a decrease in our common stock price during the year 2024.

Interest Income

Interest income for fiscal year 2025 was $13.0 million, compared to $12.3 million during fiscal year 2024. The decrease of $0.7 million was primarily attributable to higher yields earned on short term and long term investments, partially offset by lower average cash balances during fiscal 2025.

Interest Expense

Interest expense for fiscal year 2025 was $21.6 million, compared to $6.8 million for fiscal year 2024. The increase of $14.8 million, or 218%, was primarily attributable to a one-time charge of $9.2 million related to the issuance of warrants to holders of the 2028 Convertible Senior Notes, as well as higher interest expense resulting from the issuance of additional convertible senior notes during fiscal year 2025.

Liquidity and Capital Resources

We have incurred operating losses and negative cash flows from operations since inception through December 28, 2025 and expect to incur operating losses for the foreseeable future. As of December 28, 2025, we had cash, cash equivalents, restricted cash, and investments of $620.8 million, working capital of $477.2 million and an accumulated deficit of $977.8 million.

Material Cash Requirements

We currently use cash to fund operations, meet working capital requirements and fund our capital expenditures. In fiscal year 2026, we expect that our spending in cost of revenues and operating expenses will continue to increase as we ramp up our Fab2 operations.

During the fiscal year 2025, we purchased $18.2 million in property and equipment. We will continue to increase our property and equipment purchases in the near future to acquire our battery manufacturing equipment and support the build-out of our manufacturing facilities. Please see our discussion of contractual obligations and commitments in the section below for further information.

In July 2025, we declared and issued the Warrant Dividend to holders of record of our common stock and the holders of 2028 Convertible Senior Notes as of the close of business on July 17, 2025 (the “Record Date”). A total of 26,526,344 Warrants were exercised for proceeds of $224.2 million, net of commissions and offering expenses. We intend to use the proceeds from the Warrant exercises to support manufacturing scale-up and for general corporate purposes. Please see Note 12 “Treasury Stock, Warrant Dividend and Warrants” of our Consolidated Financial Statements in this Annual Report for further information.

In September 2025, we issued $360.0 million aggregate principal amount of the 2030 Convertible Senior Notes with an interest rate of 4.75%, which will mature on September 15, 2030. The net proceeds of the 2030 Convertible Senior Notes were approximately $348.8 million, after deducting the initial purchasers’ discounts and commissions and the estimated offering expenses payable by us. We used approximately $45.3 million of the net proceeds from the offerings to pay the cost of the capped call transactions related to the 2030 Convertible Senior Notes. We intend to use the remaining net proceeds for working capital and general corporate purposes, including potential future acquisitions. Please see Note 9 “Borrowings” of our Consolidated Financial Statements in this Annual Report for further information.

Additionally, during the third quarter of 2025, our Board of Directors authorized the Repurchase Plan. Pursuant to the Repurchase Plan, we repurchased 5,437,556 shares of our common stock for $58.4 million for the fiscal year ended December 28, 2025 and we may continue to make repurchases from time to time through open market purchases or through privately negotiated transactions. As of December

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