Thank you for standing by and welcome to the Inovix Corporation second quarter 2026 earnings conference call. Currently, all participants are in a listen only mode. After the speaker's presentation, there will be a question and answer session. As a reminder, today's program will be recorded. And now I'd like to introduce your host for today's program, Monica Gould, investor relations for Inovix. Please go ahead.

Thank you, operator. I would like to welcome everyone to Enovix Corporation's second quarter 2026 financial results conference call. Joining me today are President and Chief Executive Officer Dr. Raj Talluri and Chief Financial Officer Ryan Benton. Raj and Ryan will be speaking to the slide presentation displayed on today's webcast, which will also be posted along with our press release on our investor relations website at ir.enovix.com. They will provide prepared remarks and we will then open the call for questions. Before we begin, please note that today's call contains forward-looking statements that are subject to risks and uncertainties. These statements are based on current expectations and may differ materially from actual future results due to a number of factors. For discussion of these risks, please refer to the disclosures in today's press release and our filings with the Securities and Exchange Commission. You can also find these materials on our IR website. All statements made on this call are as of today, August 12, 2026, and we undertake no obligation to update them except as required by law. During the call, we may also reference non-GAAP financial measures. Reconciliations to the most directly comparable GAAP measures are included in the materials posted on our IR website. And with that, I will turn the call over to Raj.

Good afternoon, everyone, and thank you for joining us. We have one final cycle life test and it's already well underway. We expect to finish remaining testing by the end of 2026 with the customer acceptance and smartphone field testing to follow. In Smart Eyewear, the production ramp of our lead customer has begun. We shipped approximately 2,100 batteries to a Tier 1 customer, recorded our first Smart Eyewear product revenue from this customer, and expect to deliver roughly nine times that volume in the third quarter. In drones, defense, and industrial, we grew the pipeline by 41% from the first quarter. Drones led the way, we advanced product development, and the drone pipeline alone exceeds over $100 million now. Thank you for joining us. Thank you for watching. Arthi Chakravarthy, Arthi Chakravarthy, Arthi Chakravarthy, Briefly on the two platforms, the AI platform uses a proprietary 100% silicon anode architecture for space-constrained applications where the volumetric energy density and cycle life are most critical, while the MX platform blends silicon with graphite for greater gravimetric energy density and high power performance manufactured at a proven facility in South Korea. These are not isolated businesses. They are mutually reinforcing. and we're seeing this convergence translate into new areas for growth today. We're working on silicon blended opportunities beyond our traditional drone defense and industrial markets. Drilling down a bit further, First on smartphones, we moved materially closer to completing qualification with our lead customer. The customer has now confirmed the cells passed more than 1,000 cycles under the 0.2C discharge cycle test. This is the same test our internal testing indicated when we shared it with you in February. The customer's own data has now borne it out. Fundamentally, this is a customer-confirmed evidence that our silicon anode batteries can perform at high levels. Remaining work to be done is an accelerated cycle life test built around a hybrid protocol we defined in close collaboration with our customer to replace the traditional 0.7C testing approach for legacy graphite batteries. Testing is now live across several combinations of charge and discharge conditions as well with an enhanced cell design. and the same progression is underway. The enhanced cells are now showing stronger capacity retention or internal work and the data is now with our lead customers' hands for evaluation along with multiple variants of the hybrid protocol. We anticipate completing this final test in 2026. Our second smartphone OEM is also moving towards a similar qualification framework and we expect to begin sample deliveries in the fourth quarter. As we look towards 2027, we see the pattern repeating and expanding. Our lead customer moving into commercial introduction with our second OEM advancing through qualification and additional leading OEMs with whom we are in active dialogue entering the qualification pipeline behind them. We pioneered the qualification testing pathway for silicon batteries and smartphones so every customer after the first gets a faster, clearer path to execution and deployment. I'm especially proud of our progress in smart eyewear, which has now moved from initial production into early commercial revenue with a Tier 1 customer. Recently, we completed a key international safety certification for cells and battery packs, as well as a full suite of customers' reliability tests. We shipped approximately 2,100 AI1 batteries in Q2 and recognized our first Smart Eyewear product revenue. Thank you for watching. Turning to our defense sector, I'm proud of the team's execution from initial product launch in the first quarter to substantial increase in our drone pipeline in the second quarter to customer sampling beginning now in the third quarter. The pipeline for products manufactured in South Korea increased 41% to approximately $183 million from the $130 million at the end of first quarter. As a reminder, this figure represents the estimated peak annual production value, the lifetime opportunities often many multiples more. More than half the growth came from drone opportunities, which now exceed $100 million on their own. Let me walk through what's inside that number. Because the funnel you see on the slide, more than $40 million in this pipeline is at stages where customers are actively evaluating and testing our cells or designing them into products. And the breadth is striking, including some of the most recognized names in defense technology and consumer electronics. We also introduced MX-01 to a broader set of customers and industry events in the United States and Europe. At approximately 360 Wh per kg, while supporting high continuous and pulse discharge, MX-B01 is designed to improve mission execution. Flight time? Thank you. Thank you. Thank you. Thank you very much. Our South Korea operation is a meaningful advantage in pursuing these programs. It combines an established history serving defense customers with enhanced manufacturing, quality, and supply chain capabilities in a TAA-designated country. Our South Korea supply is TAA-compliant today and ready for the expected mid-2027 capacity ramp, and we expect NDAA compliance across multiple product SKUs. In July, our drone battery completed UN 38.3 transportation testing, clearing an important step for commercial shipment, and we're commencing sampling with numerous customers in the third quarter. The next phase of Korea capacity is expected to come online in mid-2027, a very capital-efficient expansion utilizing existing land and buildings we own and using readily available equipment. The economics are attractive as well. ASPs are healthy and because we own our own manufacturing, we believe the scaled volume can support solid margins. Beyond the current product, MX2 remains targeted for 2027 with the goal of reaching 401 hours per kilogram. Let me now come back to the AI technology platform. We produced the first AI2 engineering samples in the first quarter. AI2 is expected to provide approximately 20% higher volumetric energy density than AI1 by combining thinner materials, better packaging efficiency, and higher cathode voltage through our EX3M technology node. We sampled cells to one Tier 1 Smart Eyewear customer in Q2, Many of the same EX3M innovations are expected to carry into the future smartphone batteries and support another meaningful step forward in performance in that area as well. I want to give you some insight into how our pace of innovation is also accelerating, as it is something I'm particularly focused on. In batteries, the grading factor on development speed is cycle life testing. A full cycle life test has historically taken four to five months. That sets the tempo of learning in the entire industry. We are developing AI models that can predict cycle life outcomes much earlier in the cycle life test than has historically been the case. Our models for AI cells are getting close and we're making very good progress in smart fold cell modeling as well. To be clear, customer qualification will always be the physical test, but this is about how fast we can learn and iterate internally. If we get this right, every design generation arrives faster and that speed itself becomes a durable competitive advantage. Turning to manufacturing, the second quarter showed continued improvements across Fab 2, with particularly strong results through most of the smart eyewear production flow. In fact, our smart eyewear cell output came in well ahead of our internal plan for the quarter, and our integral yield, the cumulative yield across the entire production line, has now improved for three consecutive quarters. Outside Zone 1, all but one process step operated yields of at least 95%, with individual steps as high as 99.6%. Zone 1 dicing remains our primary throughput bottleneck and a top focus, but the yield has improved to approximately 84% from 80% in the first quarter. Zone 1 has been a stubborn constraint for a long time. This is exactly why we changed the approach rather than simply tuning it. The hybrid dicing configuration uses laser and mechanical processes where each is most effective and is designed to lift Zone 1 throughput to multiples of today's rate. The step change we need to support the production volumes we are planning for 2027. Several of the key mechanical dicing steps are expected to come online around the year end. Supporting all of this execution is our growing team in India. A team, in addition to conducting advanced research, directly supports manufacturing execution at both Malaysia and South Korea factories. Finally, I want to spend a moment on leadership because I'm thrilled to have Michael Vyvoda on board as a Chief Operating Officer. Michael brings decades of operations experience, including at Apple. He has a full scope mandate across manufacturing, supply chain, quality, and customer delivery. His immediate priorities are increasing SmartiWare output, preparing manufacturing for smartphone field test builds, and driving the cost, yield, and delivery output improvements underway. Adding Michael gives me even more confidence that you're the right team for the next phase of scale. With that, I will turn the call over to Ryan to review our financial results and outlook.

Thanks, Raj. We delivered another quarter of revenue growth and positive gross profit. We came in better than our operating loss guidance, and we ended the quarter with over $550 million in cash on the balance sheet. All while continuing to invest in the customer programs and manufacturing work that support the next phase of commercialization. Second quarter revenue was $9 million, up 21% year over year and 19% sequentially at the high end of our guidance. Our fifth consecutive quarter of year over year revenue growth. Defense shipments from South Korea remained the largest contributor while smart eyewear generated its first product revenue. Modest in amount, but an early proof point of contribution from AI-powered wearable devices. Gap gross profit was $1.3 million and non-gap gross profit was $1.8 million, representing gap and non-gap gross margins of 14.4% and 19.9% respectively. The year-over-year decline in quarterly margin primarily reflected the mix of battery products sold through our South Korea operation rather than a change in underlying execution. Even with that change in mix, this was our seventh consecutive quarter of positive gross profit on both a gap and non-gap basis. And the first half non-gap gross margin was up year-over-year to 22.8% from 21.3%. Non-GAAP operating expenses were $30.6 million compared with $28.8 million a year ago. The increase reflects continued spending on smartphone qualification, product development, and manufacturing readiness, including support for the Smart Eyewear ramp. Non-GAAP loss from operations came in at $28.8 million, better than our guidance range of a loss of $29.32 million. Adjusted EBITDA was negative $18.9 million compared with negative $20.1 million in the second quarter of 2025. And non-GAAP net loss per share was 13 cents at the favorable end of our guidance range of a loss of 13 to 17 cents in unchanged year over year. Turning to cash flow, net cash used in operating activities was $21.8 million, down from $25.9 million in the second quarter of 2025. And free cash flow was an outflow of $31.4 million versus $33.8 million a year ago, both better year over year despite higher capital expenditures supporting our manufacturing scale-up. The operating improvement primarily reflected favorable working capital changes. We ended the quarter with approximately $552.1 million in cash, cash equivalents, and marketable securities, including restricted cash. That liquidity allows us to fund the qualification and commercialization milestones already underway while preserving flexibility for selective strategic investments. We did not repurchase any shares during the quarter. Our capital deployment priorities remain unchanged. Product qualification completion, discipline manufacturing investment, and commercial execution. For the third quarter, we expect revenue between $9 and $10 million, up approximately 13% to 25% year-over-year. The range assumes continued defense and industrial shipments from South Korea and a significant sequential increase in smart eyewear deliveries. We expect non-GAAP loss from operations between $29 and $32 million, and non-GAAP net loss per share between 13 and 17 cents. We expect capital expenditures between $8 and $12 million, primarily for FAB II initiatives and South Korea capacity expansion Raj discussed. As always, quarter-to-quarter revenue and gross margin can vary based on product mix, customer delivery timing, and the pace of qualification and commercial program ramps. For the third quarter specifically, two factors will shape gross margin, product mix in our South Korea business, and the early cost of the smart highway ramp before volumes reach scale. We will continue to manage spending with discipline and align our investments with measurable customer product and manufacturing milestones. And with that, let me turn the call back over to Raj for some closing thoughts before we open the call up for questions.

Thank you, Ryan. This quarter, all three of our markets moved forward at the same time. Smartphone silicon batteries passed a critical milestone, smart eyewear entered its revenue generation stage, and our drone and defense pipeline is growing rapidly. The milestones to watch from here are just as clear. Completing the final accelerated smartphone qualification test, initial sample deliveries to our second smartphone OEM, The Smart Eyewear Ramp, Converting Drone and Defense Opportunities into Design Wins, and Continued Improvement in Manufacturing, Throughput, and Cost. With that, operator, we're ready to take questions.

We will now begin the Q&A session. Please note that this call is being recorded. If you'd like to ask a question, please use the raise hand feature on your screen. Questions will be answered in the order they are received. Please ask one question and one follow-up at most. We'll now pause a moment to assemble the queue. Our first question will come from Colin Rush with Oppenheimer. Your line is open. Please go ahead.

Thanks so much, guys. I just want to get a sense of volumes. As you start to ramp the eyewear business line, how do we want to think about total volumes to get to that optimal margin level? And how many quarters do you think it'll take to get there?

Thank you, Colin. I can take a shot at it and then Ryan will add some more commentary on margins and so on. Firstly, we are actually very pleased with the progress in manufacturing on these small cells. Going from a few thousand packs to now roughly 19,000 next quarter and on the way to fulfilling 50,000 pack order. This shows our confidence in manufacturing of this cell. on our technology platform in our Penang fam. And I'm really proud of what the team has done there. Look, the market itself, as I said the last quarter, the market is multiple millions of units and expected to grow year after year. We are sampling now to different customers who are in various stages of building the products. Exactly how much we'll ship will depend upon how successful their products are and what share we win. But I can say this, the feedback we've got from the customers is the cell has been very strong, mainly driven by the energy density we provide in this small form factor. And it's translating into much longer battery life, particularly with AI running on these glasses. So maybe I want you to take on margins.

Yeah, no, that's fair. I mean, look, not to be repetitive, but we ship 2,100 units in queue. The absolute revenue from that is nominal. Of course, on pricing, Specifically, you know, I'm not going to quote a number there, you know, particularly because we're dealing with one single important customer. And so I can't really go into those economics. But what matters for us really, you know, I consider most important is that we build scale, is that we get into a position of incumbency into the growing market. We want to be the default battery choice for smart hardware, specifically kind of finishing off on margins. You know, of course, even at the 50,000 unit level for the year, that can't absorb the overhead burden that it will face as those costs start to move in geography from operating expenses up above the gross margin line. So we expect it to be negative margin for the balance of the year. It really, as we ramp, ultimately, as we get to some version of scale, and I'm not going to quote a specific number of what the breakeven point is. Raj talked about the market growing. As the customer adoption, the pull-through starts to happen, we do expect to have healthy gross margins.

Excellent. And then in the drone market, obviously, there's a lot of different applications. And so I want to get a sense of how you're sitting within that opportunity and which applications you're competing well within. Thank you very much.

The main metric is what hours per kilogram. And that cell actually is made fully in our own factories. And it's a TIA compliant country in South Korea. And we expect it to get to NDIA compliant path across multiple SKUs in 2027. And this factory, you might remember Colin as... More than a decade of production history on this site. So, you know, into military applications. The main markets we're getting into there are markets where, you know, they want a few hundred cycles, for example, of flying time and also safety, you know, public safety. Interceptor Drones, ISR, and markets like that. These are the markets that I feel like have a good margin profile and a lot of demand. And our expectation is that the demand is actually going to outstrip the supply here very quickly with many, many customers wanting that. And we are super excited that we have this, our own factory that we're able to make it in where the margin profile will be really good. And we are adding more capacity there. and as I mentioned in the prepared remarks, we expect that capacity to come online in mid-2017.

If I could chime in as well, as we go through the names of the pipeline and look at it, these are some of the best companies in the world, so some really exciting opportunities. Of course, drones is a big portion, the majority of that funnel that's building right now. We expect that to be strong for many years to come, but then there's other technologies that we think will build right on top of this. I think robotics is another example that we look a few years out, we think it's going to be a big market as well.

Your next question will come from Ruplu Bhattacharya with Bank of America. Your line is open. Please go ahead. Ruplu, your line is open. If you could unmute and please ask your question.

Hi, can you guys hear me now?

Yes, sir.

All right, I had two questions. Raj, now that both the lead smartphone customer as well as the second smartphone OEM, they've moved to a silicon specific qualification framework. How standardized do you think this will become in the industry and what steps are you taking to enable that? And does the second OEM now have essentially the same qualification path as the lead customer? And when do you expect POs from the first customer as well as the second customer? And I will follow.

Yeah, so good question. Yes, I think what has happened is, or the work we've done over the last couple of quarters, we've really been able to convince the customers that when you move from graphite anodes to 100% silicon anodes, some of the legacy tests are not very representative of how the battery will actually perform in real life, which is, I think, a huge step forward that we've been able to accomplish. and as I mentioned you know in February we talked about this point to see cycle life test where we're internally seeing that we should be able to go past thousand cycles now the customer has confirmed that on their own test so we are very you know happy about that and the one test that's left is really the accelerated cycle life test where you know if we just do at a normal cycle life point to see it just takes a long time so people really need an accelerated test We've now worked with the customers to come up with a hybrid protocol, which is some combination of the different rates of discharge. And that's what the customers are running. My lead customer is running now. There's two or three different protocols that we work with them on. and you know our expectation is one of them will meet the requirements that they have in fourth quarter then we expect to get to you know a small build of you know they'll put the battery inside the phone to see how it performs and then we start getting into volume production in 27 and so on We do continue to talk to our other customers too. And then we talk to them about, we have a good engineering relationship where we talk about these protocols. I do expect in time that the market will adapt and change to these kinds of protocols because, you know, silicon behaves differently than graphite in accelerated tests.

Okay, thanks for the details there. As a follow-up, can I ask, you've made many manufacturing improvements in Fab 2. What is the manufacturing capacity now as it stands today of HVM1 as well as the agility line? Can you give us a sense for like how much max units or smartphones and eyewear that each of these lines can support? Thank you.

Yeah, I mean, look, like I said, when we first said what the lines were, we have continued to keep that. You know, 1350 UPH was what the nameplate capacity of the line was. We haven't really staffed to all of that because we are, you know, managing that through the qualification timeline with the customer so that when the demand is there, we are there. And again, it's not really a question of how much capacity we have. It's more a question of pacing that line with the right number of people and working on the yields and working on the ramp in line with as the customer qualifications are going. So that's kind of where we are on that.

Your next question will come from Mark Shooter with William Blair. Your line is open. Please go ahead.

Hey, guys, you can hear me, right? Yes, sir. Awesome. Thanks, Ryan. And hey, Raj, congrats on passing the 1,000 cycles. That's a big accomplishment. I do think that we thought that this would be the last milestone in StageGate though. So can you walk us through the last test? What are we trying to prove there? I mean, I know it's a hybrid approach, but is there something that your lead smartphone customer saw that required a little bit more digging in? Any color there would be helpful.

The last test basically is what I call an accelerated test, which basically means that they would like to and discharge at a faster rate, as I mentioned, but not just all the way at the high rate, but some combination of a faster rate and some combination of a slower rate, which is kind of more representative of what a phone might actually do in the real world. And we are working with them on the protocol that actually will get that done. And they have a number that we need to meet to, you know, to get to that. And that's what we're working on. You know, the next stage after that is to actually do the test inside a phone, right? These are bench tests on the battery on the table. So that's the next step to it. Like I said, the main gating item right now is an accelerated cycle life test so they can complete the test in time. And we have multiple protocols that we are working jointly with the customer and they're all underway. And by fourth quarter, we expect to see some good results.

And Mark, at the risk of being repetitive again, it's like go back to the February print and we... and we showed in the presentation and talked about how we passed the 0.2C test internally. We're waiting on the customer to run that test themselves and that's what we've put in the headline here today and we're very proud of that we've got that independent verification from the from the customer. What we also talked about in the February print and follow up in the May print was the 0.7C test. And that's the traditional graphite test that we needed to find a proxy or a substitute. And now we've, you know, we've got the framework in place. We mentioned, you know, last quarter, and now we have cells running under a handful of separate variant protocols. And we expect, you know, one or more of those to pass by the end of the year.

Okay, got it. Thanks, guys. Switching over to the drone opportunity, which is increasing here with $100 million pipeline. That's a big number. And it's exciting business. What I'm interested in is, can you walk us through maybe some of the timeframe of what that engagement looks like with a customer? So you have 5 million in wins already, but Can you walk us through how long it may take to move somebody from a pipeline opportunity to down subsequent steps? Is it nine to 18 months? And when do you see some of a decent conversion from that pipeline opportunity into backlog?

Yeah, as I mentioned, I think we have... Thank you very much. and the revenue and scale aligns with our Korea capacity coming online in mid-2027. So we start to expect to see ramp of some of this pipeline in mid-27. And again, this capital expansion is very capital efficient because it's on the land and buildings we already own.

Yeah, and I could comment as well, because I sit through those same pipeline reviews. There's some splits within that group as well, right? So the drone companies themselves, they're all trying to move really fast, in my opinion. So it's six to nine months, and we're sampling those. And quite frankly, within our internal teams and cell teams, everyone's fighting over samples in terms of how we prioritize. Yeah. And then there's the separate split of the defense primes. And as we start to focus on supporting those type of activities, those tend to be a little bit longer runway. So 18 months is, I think it's not an unfair number to say what we think the average time is to get to production with some of those. But those represent some enormous opportunities. And so in both of these areas, it's really about us Putting capacity in place and the equipment that we've ordered and is in flight right now, pardon the pun, is just hopefully the beginning.

Your next question will come from Derek Soderberg with Cantor Fitzgerald. Your line is open. Please go ahead.

Yeah, hey guys, thanks for taking the questions. Just a clarifying question here first, Raj, you were talking about the testing earlier. Just wanted to confirm the second smartphone OEM is accepting the 0.2C testing standard or are they, I think you had said they're, you know, sort of a few different options, but just wanted to confirm that second smartphone customer is sort of accepting the 0.2C testing.

Yeah, I mean, look, we are focused on the first one first, and when that one gets to the right stage, we will sample the second one. But we have talked to all of them about silicon being different, and they all understand that. And I think some of them have launched some amount of silicon batteries already, so they do understand that they behave differently. So I think my expectation is the whole market will move towards that in time.

It is fair to say each one should be easier and easier.

Yeah, because once you do first time, right, yeah.

Got it. That's helpful. And then just on the zone one yields, you know, improved quite a bit since Q1. I was wondering if that was mostly the the dicing configuration. And then just kind of a high level question on yield. Where do you guys feel like you need to get before you can really ramp up production? You know, maybe a yield number that gives you the confidence to invest in additional capacity, just, you know, with the assumption that demand's not not the issue.

Maybe I'll take first stab at that one. You know, I think Raj has talked for several quarters, and I've emphasized as well, in terms of, you know, we're making steady progress and we're doing things in kind of an orderly fashion in order to kind of meet our customer commitments. And so I think there's just been, it has been time to put a lot of steady progress forward. and a lot of focus on just kind of grinding out you know discipline yield wins and so there's a lot of there's there's a lot of tactical things that go in to represent and be reflected in that you know four percentage point increase so there's Thank you so much for joining us. and reporting good things. And I think he's going to just help with the momentum of progress in terms of yield to be able to start a ramp. Well, I mean, we're starting the commercial ramp with SmartWare, so we feel good about it. And we feel good that we're on a glide path and we've got a path to Your next question will come from Bill Peterson with JP Morgan. Please unmute your line and ask your question.

Yeah, good afternoon. Thanks for taking the questions. Maybe picking up on that last topic. So you have the new COO, Michael. Do you expect that he'd be probably more focused on Malaysia, improving the areas you just spoke to, or Korea, or somewhere in the supply chain? Just kind of any sort of tangible area where you think that you can get the most continuous improvement, using your words.

Yeah, I mean, you know, we don't... I think we mentioned last time with KH, who came to us with the tremendous experience from our route jet acquisition, is now responsible for manufacturing of both the factories. So Michael will be responsible for both the factories, in addition to advanced manufacturing machines that we need to build, in addition to supply chain, getting the right materials in place. So the entire operational side will be under him. And I said in the prepared remarks, our Malaysia Thank you very much. Thanks for that, Raj. The next one, I guess, maybe probably for Ryan, but

Gross margin took a step down in the second quarter. You called mixed primarily sold from South Korea. Can you provide some more color on that? And I guess it sounds like you didn't really have any impact yet from the small volumes of the eyewear, but it sounds like based off your expectations that that might be a bigger impact. So how should we think about gross margin trajectory based off the prior comments around eyewear and maybe other mixed ramifications from South Korea?

Yeah, good question. I mean, look, first I'd caution against reading one quarter as a trend. Thank you for joining us. We'll be right back. Looking forward, obviously we don't guide gross margins, but the shape to understand is that the base business is there. Last year, if I recall, 25Q4 ended up being a stronger margin quarter than Q3. But there's no doubt, smart eyewear as we ramp, it won't be big numbers, but it'll be drag. It'll be a drag on margins as we move into that ramp as the overhead gets moved into gross margins, again, from a From an operating income, from a cash flow basis, it's largely geography moving. And really, again, as we scale to 27 and beyond, we expect that to rationalize as we scale.

Your next question will come from Ananda Barua with Loop Capital. Your line is open. Please go ahead.

Hey guys, thanks a lot for taking the questions. Really appreciate it. I apologize if this has been asked already. Raj, memory availability, does that have any impact, just because it's a prolonged tightness, on any of the... The SKU qualifications on smartphones or PCs that you guys are targeting? And then I have a quick follow-up.

Thanks. Not much for us yet. We're not in high volume, so we're really in a qualification stage. So I think we don't see too much impact right now. The customers are worried about it, but not impacting us.

And is there, you know, there's a component of what's going on where low-end phones, low-end SKUs are, you know, are unable, they're just exiting the market to some degree. Would that impact you at all? Where exactly would you consider yourselves to be positioned inside of sort of that heat map, that SKU heat map?

I mean, really, we're in technology qualification stage and people really want to use us in our leadership products because that's where they see most advantage of our technology and differentiation. And that's where we are being qualified. But I do expect that to waterfall down. And like I said, at this point, the SKU mix is not impacting us that much because we are working in the qualification stage.

that'll come in time cool and if you sort of just if you I mean this is for our benefit but if you thought about what your revenue mix is you know three years out five years out like that different product segments What do you think is a useful way for us to envision what the rev contribution is to the company? Sort of anecdotal percentage, percent this, percent that, not necessarily a rev outlook.

Of course, we can't necessarily quote it. We can't quote a number or a specific. I will say it's going to be, I think, a pretty good horse race. A year ago, if I think you asked that question, we were talking... You know, principally about smartphone would be the obvious answer. I think the way that the drone market and the defense market has developed and the progress that we've made with product development, customer qualifications, and building the team, that has an opportunity to be a really big business really fast.

Yeah, and again, Smart Eyewear could take off and become huge, and that could be good too. So it's hard to call the mix, but I think all three markets for us are... attractive and where our technology provides clear benefit to our customers. So that's probably the best way I'll say it. It's exciting times because everybody wants better batteries. Awesome.

That's helpful. That's helpful, guys. Thanks. Appreciate it. Thanks, sir.

As a reminder, if you'd like to ask a question, please use the raise hand button at the bottom of your screen. Your next question will come from Jeff Osborne with TD Cowan. Your line is open. Please ask your question.

Thank you. Just a quick one, Ryan. Could you update us on where annual production capacity is at the South Korea facility now? And then Raj mentioned that you would be expanding and that would be up and running, I think, by the middle of 27. So I'm just curious, where is it now, annual revenue capacity? Where are you headed and then how much will it cost?

Thanks for the question. In terms of capacity there, we're not operating at full capacity, so there's some headroom there. There is some complexity layered down because there's different sets of equipment, so each different equipment line has different, some are at capacity, some are not. That's the reality of the current building. In terms of the The capacity for the drone business, we have minimal right now. We have placed orders for new equipment that gets us what we think is significant material capacity coming on in the summer. And that equipment is going to be tailored and customized to standard equipment, but configured for our specific product SKUs.

Are you preparing for this to be like a $100 million business 18 months from now?

The capacity of that equipment, I guess I can quote that number, is roughly a million units. And it's all embedded in the CapEx forecast that we're starting to make payments on. And you see, I think it's 8 to 12 minutes that we got it. So the It's, as Raj cited, capital efficient. We have additional buildings and land there in South Korea, so we can add incremental capacity beyond that. So hopefully this is just the first inning of that baseball game.

Yeah, and our goal is to make sure that... you know as Samira and her team converts the pipeline into opportunities into wins we don't get capacity limited right so and we are staging it in that way we are building the factory in that way so that incrementally we can add capacity quickly but you know up to million units a year as Ryan mentioned we are already on track so we can keep driving more on that as we see the design wins come in we have the space of the building so it's really not a problem

Got it. Thank you. That's all I had. Thanks. Thank you.

There are no further questions at this time. With that, I'd like to turn the call over to Dr. Raj Talluri for closing remarks.

Yeah, thank you all. Really great quarter. We're happy with all the progress we've made and look forward to seeing you next quarter.