Enovix: Zombie Firm On Declining Liquidity And Heavy Cash Burn (NASDAQ:ENVX)

I’m now bearish on Enovix (NASDAQ:ENVX) on its declining liquidity position, debt burden, and murky pathway to commercialization of its consumer gadget batteries. The company held total cash and cash equivalents of $306.8 million at the end of its fiscal 2023 fourth quarter, down a material $64.5 million sequentially and from a peak of $409.2 million just two quarters ago at the end of the 2023 second quarter. ENVX is essentially a near-zero revenue firm, hence, timelines for commercialization are still just timelines as continued quarters of cash burn look set to push the ticker into a zeitgeist defined by falling investor sentiment and an increasingly shorter cash runway. To be clear, this is a $1.35 billion firm that generated a negative gross profit of $10 million and a net loss of $60 million during its fourth quarter.

The billion-dollar valuation is currently being driven by hope, vibes, and a still lingering sense of investor euphoria over the promise of ENVX’s high energy density battery for consumer gadgets and possibly EVs in the future. But adjacent new economy companies that also took the SPAC route like ENVX have met the reality of the inevitability of what happens when liquidity dries up. Canoo (GOEV), Arrival (ARVLF), and Proterra (OTCPK:PTRAQ) also held promise when they raised hundreds of millions of dollars, but the continued lack of commercial traction and aggregate quarters of cash burn led two of these to file bankruptcy.

Timeline, Cash Runway, And Liquidity Angst

ENVX’s near-term objective is the scale-up of Fab2 in Malaysia. The company had built out roughly 250,000 square feet of factory space as of its fourth-quarter earnings with the facility also receiving shipments of Gen2 equipment that are set to undergo Factory Acceptance Testing. ENVX is targeting April to produce its first silicon battery samples and the second half of 2024 for high-volume production of cells of IoT revenue. Critically, it won’t be until later in 2025 that ENVX will begin high-volume production of battery cells for smartphone revenue. This is where ENVX’s core bottleneck lies.

Negative free cash flow for the fourth quarter was $56 million, a sequential deterioration from a cash burn of $46 million in the third quarter. The fourth quarter was the worst period of burn for ENVX in the last three years. If we extrapolated this cash burn then ENVX would lose north of $200 million in fiscal 2024, around 73% of its current cash and short-term investment position. It would mean the company has a cash runway of roughly six quarters without the raise of further outside capital. ENVX burned through $166.4 million in cash through 2023 but raised $159.6 million from financing activities on the back of $172.5 million of gross proceeds from Convertible Senior Notes which bear interest at 3% per year and will mature in May 2028.

The ramp to get Fab2 online will likely drive higher cash burn from operations in 2024 with ENVX guiding for a fiscal 2024 first-quarter adjusted EBITDA loss of $24 million to $31 million. Hence, the entire bull case is built on speculation with ENVX’s current balance sheet not providing enough depth for the ticker to ramp operations into the second half of 2025 without raising further outside capital. This has and will continue to be from dilutive sources. Further, the start of greater commercialization would likely also come with a period of losses which means ENVX for the next two fiscal years is set to be defined by cash burn.

Short interest in the Nasdaq-listed company stood at 38,679,677 as of the middle of March, around 24% of ENVX’s weighted average number of common shares outstanding of 159,575,555. This short interest at one in four shares has remained sticky since the second half of 2023 and could get pushed higher as the market comes to terms with ENVX’s declining liquidity position and uncertain roadmap to the profitable commercialization of its advanced silicon-anode lithium-ion batteries. I’m invariably now more bearish since I last covered the ticker with the view that the hype had gotten ahead of itself. ENVX will likely see its stock price continue to be volatile, but the medium-term trend is down. It’s easy to see why bulls were drawn to the story here though with the T. J. Rodgers links to Enphase (ENPH) and the promise of a material TAM from an advanced but yet-to-scale battery. But ENVX has always traded on hype, this hype represents a risk to bears as it could rear its head again but the fundamentals point to a continued erosion of ENVX’s liquidity base which will lead to further dips in the stock price.