Ensurge Micropower — Achieving commercialisation milestones

At the end of October, having solved the key challenges related to manufacturing packaged rechargeable microbatteries, Ensurge shipped its first packaged battery samples for evaluation. These samples were delivered to a leader in the hearing aid market. Since then, Ensurge has also shipped packaged battery samples to an innovative digital health device company, which is expected to require batteries for inclusion in its products during Q123, making it the first of Ensurge’s customers to go into production. In contrast to the shipments of unit cells discussed below, the packaged microbatteries are formed from unit cells stacked on top of each other and sealed in a protective package with connectors. The prospective partners and customers evaluating Ensurge’s technology are able to mount the complete microbatteries on printed circuit boards and evaluate how well they perform in prototype products.

During the first shipment phase, samples will be delivered to the five companies that have signed contracts with Ensurge and want the batteries for testing, evaluation and adoption. These include a Fortune 500 industrial company active in manufacturing capital equipment, a customer in the digital health market, two agreements in the medical hearables market and one in the broader wearables market. Management estimates that these collectively represent potential product revenue of over $50m/year. These customers are interested in complete microbatteries in the 1–100 mAh range, which can provide faster charging or higher energy density than conventional rechargeable microbatteries, can be mounted on customers’ circuit boards using conventional reflow assembly techniques (unlike typical lithium-ion coin cell batteries) or can be customised to create novel form factors such as rings. These form factors are only achievable with batteries formed on a flexible substrate such as the ultra-thin steel substrate used by Ensurge. In a subsequent phase, the samples will be offered to customers that have shown strong interest in the Ensurge microbattery’s performance but have not yet signed agreements. Ensurge is currently in discussions with more than 20 new potential microbattery customers, collectively representing over $200m in potential annual product revenue. This is more than the capacity of the San Jose fabrication facility when fully equipped.

We note that management expects that the initial revenues will be attributable to smaller companies with faster development cycles where the flexibility of form factor offered by Ensurge’s microbattery technology is essential. The larger companies with longer development cycles are likely to introduce products incorporating Ensurge’s microbatteries in H223.

In August Ensurge announced that it was complementing potential sales of complete packaged microbatteries with potential sales of its core microbattery building block, referred to as the ‘unit cell’. It is in active discussions with four large multinational corporations that are interested in unit cells rather than packaged batteries because each of them has technology that could be combined with Ensurge’s core cell technology to create solutions enabling applications yet to exist. These applications expand the market beyond the one-billion-unit market discussed below. Ensurge has already shipped unit cells in a conventional coin cell format to ease testing and evaluation to three of these strategic partners, one of which is a multinational consumer electronics and communications company and two are battery manufacturers targeting the wearables, hearables and internet-of-things (IOT) markets. The fourth strategic partner, which Ensurge is currently in contract negotiations with, is a global information and communications technology corporation.

Ensurge is focused on signing funded development agreements with the two consumer device companies and licensing agreements with the two battery companies, though funded development agreements are also an option for these partners. Management expects the partnership discussions to accelerate now three of the partners have commenced their evaluation of the unit cells. As shown in the company’s November 2022 presentation, the two consumer device companies collectively represent over $500m in potential annual revenues for Ensurge. The two battery companies collectively represent over $500m in potential revenues if a technology licensing model is adopted. We note that there is a pipeline of several other potential strategic investors.

Ensurge is currently engaged in contract negotiations with a global leader in the information technology market to undertake funded technology development, which will potentially deliver technology attributes at the unit cell level beyond Ensurge’s current roadmap. This development work will be defined to meet the demands of the third party’s aggressive wearable device roadmap, potentially delivering substantial improvements with regards to usability.

In July, the company announced funding of NOK57m gross ($5.7m), of which NOK46.7m was from convertible loans bearing 5% interest with a conversion price of NOK3.00/share and NOK10.3m from a private placement at NOK3.00/share. Management estimated that this activity would provide sufficient funds to support operations into Q422. In November Ensurge completed a private placement raising c NOK55m ($5.4m) (gross) at NOK2.0/share. The placement is split into two tranches, the second of which is subject to approval at an extraordinary general meeting (EGM) on 1 December 2022. The net proceeds will be used to fund the company’s operations and development work. Ensurge also intends, subject to approval at the EGM, to raise up to NOK15m ($1.5m), also at NOK2.0/share, through a subsequent offering to eligible shareholders.

Management aims to secure at least one long-term, funded technology development agreement with a strategic partner, which, together with revenues from customers, will significantly contribute towards coverage of the company’s cash expenses. It is focused on signing an agreement with one of its strategic partners, which management is targeting to provide substantial funding starting in Q123. If a strategic partnership is not in place soon enough, or if it does not provide sufficient funding, the company intends to raise additional funds from financial investors to cover operating costs.

Management noted a strong increase in the production rate of battery cells during Q322, which it expects to increase further during Q422 and FY23. This capacity should be sufficient to meet customer demand during FY23. However, management expects that additional capacity will be required from FY24 onwards, which will require Ensurge to start placing orders for critical pieces of equipment in early FY23. Consequently, management notes that it is actively engaging multiple US investment banks to raise equity into the California subsidiary to fund this capital investment. Management has not stated how much equity would need to be raised to cover capacity expansion. In addition, Ensurge may also outsource some of the final steps in manufacturing complete batteries to gain extra capacity.

In August Ensurge announced the appointment of Tarun Anand as acting CFO, replacing Dave Williamson, who has retired after almost three years as acting CFO. Tarun has more than 20 years’ experience in finance leadership at both established corporations, such as Hewlett Packard and Thermo Fisher, as well as several pre-IPO start-up firms.

We continue to present a scenario analysis rather than a formal valuation based on peer multiples because Ensurge does not expect to generate revenues from its solid-state battery technology until Q123. Referencing research from IDTechEx and others, management notes that the medical wearables, hearables, connected sensor and sport & fitness wearables markets are predicted to grow to more than one billion units per year by 2025. This excludes applications addressed by strategic partners (see above) rather than microbattery customers. 

As discussed in our March note, these markets require batteries in the 1mAh to 70mAh capacity range. This capacity range is already covered by conventional lithium-ion batteries, although the relative size of lithium-ion batteries compared to solid-state batteries makes it likely that a material percentage of device manufactures will elect to pay a premium for the solid-state option. Ensurge has had detailed conversations with potential customers with which it has shared design details and in H121 stated that it believed a price of $3–10/unit was achievable. 

Our scenario analysis presents the annual revenues realisable from these markets for a range of unit prices and levels of market penetration. Our analysis shows that a 5–10% share of these markets at a $3–10 price range represents annual revenues of $330–550m. Based on previous management guidance of c $20m fixed costs (current levels are $16.7m) and 30% variable costs, this gives an EBITDA range of $211–365m. Management notes that when the R2R factory in San Jose is fully equipped and utilised it should be able to output several hundred million mAh of batteries each year, potentially generating EBITDA of more than $100m depending on product mix.