Everspin Technologies Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 1, 2023

There are 6 speakers on the call.

Operator

Good afternoon, and welcome to the conference call to discuss Everspin Technologies Third Quarter 2023 Financial Results. At this time, all participants are in a listen only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. As a reminder, this conference call is being recorded today, Wednesday, November 1, 2023. Before we begin the call, I want to remind you that this conference call contains forward looking statements regarding future events, including but not limited to our expectations for Everspin's future business, financial performance and goals, customer and industry adoption of MRAM Technology, successfully bringing to market and manufacturing products in Everspin's design pipeline and executing on its business plan.

Operator

These forward looking statements are based on estimates, judgments, current trends and market conditions and involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward looking statements. We would encourage you to review our SEC filings, including our quarterly report on Form 10Q, which will be filed with the SEC on November 2, 2023, and other SEC filings made from time to time in which we may discuss risk factors associated with investing in Everspin. All forward looking statements are made as of the date of this call. And except as required by law, we undertake no obligation to update any forward looking statements made on this call to update or alter our forward looking statements, whether as a result of new information, future events or otherwise. The financial results discussed today reflect our preliminary estimates, are based on the information available as of the date hereof and are subject to further review by Everspin's and its external auditors.

Operator

Our actual results may differ materially from these estimates and as a result of the completion of our financial closing procedures, final adjustments and other developments arising between now and the time that our financial results for this period are finalized. Additionally, The company's press release and statements made during this conference call will include discussions of certain measures and financial information in GAAP and non GAAP terms. Included in the company's press release are definitions and reconciliations of GAAP net income to adjusted EBITDA, which provide additional details. A copy of the press release is posted of the Investor Relations section of Everspin's website at www.everspin.com. And now, I'd like to turn the call over to Everspin's President and CEO, Sanjeev Agrawal.

Operator

Sanjeev, please go ahead.

Speaker 1

Thank you, operator, and thanks, everyone, for joining us on the call today. Everspin delivered quarterly revenue of $16,500,000 above the high end of guidance and an 8% increase year over year. We were GAAP net income positive for the 10th quarter in a row, a strong focus for the company. A few highlights for quarter 3, 2023. Cash flow from operations was $3,600,000 putting us at $11,100,000 year to date.

Speaker 1

We continue to operate debt free while increasing profitability. Q3 net income was 2,400,000 Everspin ended Q3 with a cash balance of $34,900,000 We announced the availability of the Xpi family of STT MRAM products from 8 megabit to 64 megabit density with the extended temperature range of minus 40 centigrade to 105 centigrade for production orders. We are sampling the 4 megabit density part in the smaller BFN package and the extended temperature range with production planned for the Q1 of 2024. In Q3, we entered into an agreement to develop reliability models for strategic radiation hard end Toggle MRAM. In October, we entered into a new contractual agreement to license our STT MRAM technology to build a strategic radiation hardened FPGA.

Speaker 1

Our business outlook. We continue to have a good visibility into our product backlog for the remainder of 2023 and into early 2024 as of September 30, 2023. We have alleviated our foundry supply chain constraints, which is helping us address our unfulfilled Toggle demand. Products. We expanded our flagship industrial high density STT MRAM product family, The EMXX LX to include a 5 millimeter by 6 millimeter DFN package, Smaller by 37% compared to the current offering.

Speaker 1

In addition to the area savings, we are delivering an extended temperature of minus 40c to 105c. This family of XPi STT MRAM devices Delivers the highest combination of performance, endurance and retention and are now available in densities from 4 to 64 meg. It is the only commercial available persistent memory with full read and write bandwidth of 400 megabytes per second via 8 input output signals with a clock frequency of 200 megahertz. It is the highest performing persistent memory available today, ideal for electronic systems where data persistence and integrity, Low power, low latency and security are paramount. Industrial IoT, network enterprise, Infrastructure, process automation and control, aeronauticsavionics, medical, gaming and FPGA configuration are examples where this family will simplify the system architecture and offer an alternative solution to legacy memories such as ferroelectric memories, FRAM, battery backed random access memories, BB RAM, NOR flash and non volatile SRAM.

Speaker 1

A few comments about our radiation heart programs. Since its inception, Everspin has invested in maintaining its leadership In MRAM Technology, as evidenced through its IP portfolio and successful licensing of its technologies. We are excited to report that we entered into 2 new radiation heart program agreements, 1 on Toggle MRAM to develop reliability models for the strategic radiation hardened Toggle MRAM products. The second agreement is to license our STT MRAM technology to build a strategic radiation hardened FPGA. These agreements are in addition to the existing radiation hard programs on STDM RAM technologies that we have discussed in previous earnings calls.

Speaker 1

1, a high density memory array and 2, a distributed Configuration memory for instant on FPGAs with multiple time programmability. The R and D and design teams delivered on the milestones successfully to further the development of these STT MRAM based solutions for these projects. We believe Our distributed MRAM, we are coining as DMRAM approach is a revolutionary approach and will give us an edge on energy efficiency and scaling as we deploy the solution in FPGAs and AI inference engines. I will now turn it over to our CFO, Anuj Agarwal, who will take you through our Q3 financials and Q4 2023 guidance.

Speaker 2

Anuj? Thank you, Sanjeev, and good afternoon, everyone. As part of our Q3 2023 financial results, We are pleased to announce our 10th consecutive quarter of positive net income. In addition, we generated positive cash flow from operations of $3,600,000 during the quarter. We delivered solid quarterly results above the high end of guidance with revenue of $16,500,000 compared to $15,700,000 last quarter and $15,200,000 in the Q3 of 2002.

Speaker 2

We also had positive net income of $2,400,000 and positive cash flow from operations of $3,600,000 for the Q3 of 2023. MRAM product sales in the Q3, which includes Both Toggle and SCT MRAM revenue was $13,500,000 compared to $13,400,000 the prior quarter and 14.6 in last quarter and $700,000 in Q3 2022. Shipments to suppliers for our high density STT product for the data center applications represented 11% of revenue in the 3rd quarter versus 7% of revenue in Q2 and 19% in Q3 last year. Turning to gross margin. GAAP gross margin for the Q3 of 2023 was 60.2% versus 58.4% in the prior quarter and 58.8% in Q3 2022.

Speaker 2

The increase in gross margin is primarily attributable to the increase in licensing revenue. GAAP operating expenses for the Q3 of 2023 were were $7,900,000 versus $7,600,000 in the prior quarter and $7,100,000 in the Q3 2022. The increase in operating expenses in the quarter compared to Q3 2022 was primarily driven by an increase in professional service costs. We are pleased to report Q3 2023 positive net income of $2,400,000 or $0.11 per share based on $21,800,000 weighted average fully diluted shares outstanding. This compares to a GAAP net income of $3,900,000 or $0.18 per diluted share in the prior quarter and net income of $1,900,000 or $0.09 per diluted share in the Q3 of 2022.

Speaker 2

Diluted EPS of $0.11 was better than the high point of our guidance range, reflecting our strategic operational discipline and ability to drive profitability despite macroeconomic uncertainties. Adjusted EBITDA continues to remain positive. For Q3 2023, adjusted EBITDA was $4,000,000 compared to $5,400,000 in the prior quarter and $3,400,000 in Q3 of last year. We ended the quarter with cash and cash equivalents of $34,900,000 compared to $8,800,000 at the end of the prior quarter and $23,400,000 as of Q3 2022. The increase in cash quarter over quarter is a result of Everspin's continued focus on strong Cash management, while growing cash flow from operations as the company continues to operate debt free.

Speaker 2

Cash flow from operations was healthy at $3,600,000

Speaker 3

for the current quarter.

Speaker 2

Turning to our Q4 2023 guidance. Everspin is cautiously optimistic. Demand for our Toggle products remains strong and we continue to see increased demand of our Xfi family of SCT products. We expect total revenue in the range of $15,400,000 to $16,400,000 and GAAP net income per diluted share to be between of $0.01 $0.06 I will now turn it back over to Sanjeev for some brief additional commentary before we open it up for questions.

Speaker 1

Thanks, Anuj. In summary, we reported another profitable quarter, now 10th in a row, which remains a strong focus for the company. We are excited that our Toggle MRAM and STT MRAM technologies are being selected for radiation heart programs, taking advantage of our leading edge capabilities. We believe the extended temperature range capability of minus 40C to 105C of our STT MRAM XPI family positions us well to address the fast growing Industrial IoT and Embedded Systems markets. We have good visibility into our Toggle MRAM backlog through 2023 and early 2024 giving us confidence in our business.

Speaker 1

Thank you for joining us today. Operator, you will now open the line for questions.

Operator

Thank you so much. One moment for our first question that comes from Shadi Mohali with Craig Hallum. Please proceed.

Speaker 3

Hey, guys. Congrats on another solid quarter. I just got a question on revenues being on the upper end of guidance. It looks to be mainly coming from licensing. So with that, is most of the increase in licensing revenues coming solely from the RadHard programs?

Speaker 3

Or are we seeing any meaningful royalties from past licenses contributing to the increase in licensing revenues?

Speaker 2

Hi, Shadi. This is Anuj. Thanks for the question. Yes, for Q3, the goodness came from the licensing and royalty We had some strong revenue from the QuickLogic deal and then we had a third Brad Hard deal that Sanjeet mentioned Related to Toggle Reliability. And so we were able to get some work done there and account for that revenue as well.

Speaker 2

I will say also though product sales were strong and so sales continue to be strong in Q3.

Speaker 3

Awesome, awesome. And then I just got actually a question on product sales. With products being down Q over Q, Has there been any unusual activity with the backlog such as push outs or even cancellations regarding backlog?

Speaker 2

Yes. The interesting thing was backlog, Shadi. So there's definitely some Macroeconomic uncertainty and industry trends that are happening, right? So the supply constraints are loosening. The lead times are reducing like we had mentioned last couple of quarters.

Speaker 2

And so we are seeing customers booking within the lead time, but they're kind of waiting To book outside the lead time, right? And so, we are seeing some impact in APAC, for example, within the Industrial Automation section.

Speaker 3

So would the Industrial Automation segment be one of your guys' more weaker end markets you're experiencing?

Speaker 2

No. Actually for Q3, we had good results in the Industrial segment. I was just making a comment that the industrial segment has Some uncertainty in China and so there are some challenges there. Okay. But it's been strong in

Speaker 4

the past few quarters.

Speaker 3

Okay. Yes, that makes sense. And then just one more question on end markets. Were there any particular end markets You guys are seeing a little more strength or weakness in?

Speaker 2

Not particularly right now. I think just overall there's some macroeconomic uncertainty, right, as things are happening. So You're just seeing customers waiting to place orders, right, and just wanting to see what's happening in China and what's happening in the economy in general. But overall, the segments look good except for what I mentioned, some risk and industrial.

Speaker 3

Awesome. Yes, it makes sense. That's all for me and congrats on another solid quarter. Thanks, Shadi.

Operator

Thank you. One moment for our next question. And it comes from the line of Quinn Bolton with Needham. Please proceed.

Speaker 5

Hey, guys. This is Nick Doyle on for Quinn. Wanted to focus on RadHard. It's doing really well, Claiming these new wins, new licensing. Can you just talk a little bit about the applications, the end applications that are actually using that?

Speaker 5

And then the new licensing deal, is that a one time item or are we stepping up the kind of baseline of licensing revenue? And then if we could also if you could also touch on the products, are we still on track to enter production by end of next year and customers shipping in 2025? Thanks.

Speaker 1

Thanks, Nick. This is Sanjeev. So I guess I'll try to remember all your questions, but if I forget something, please remind me. As far as the goodness of the radiation hot deals, you're right. I mean, we were really excited that we were picked by the Government contractors to actually have one project on Toggle MRAM and another one on STT MRAM as well.

Speaker 1

The licensing deal that you talked about or that we talked about for STT MRAM, that is actually targeted towards And instant on FPGA similar to the one that we announced, I believe, 2 or 3 quarters ago. So this is a new project with a different vendor, Although the subcontractor is still through QuickLogic, but they have a different CMOS provider. These licensing deals are obviously very lumpy and they are opportunistic. I would not say that this is the last Licensing deal that we will come across. We hope to get even more going forward.

Speaker 1

I'm not giving any guidance, but we are hopeful that our technology keeps getting I recognize that we get we keep getting picked up for other projects. And just as a reminder, I think a year ago, we had talked about a deal with Honeywell, Where we are actually building a 64 megabit array and there obviously it's more of a persistent memory type solution for radiation hard environments. As far as our 64 megabit And the 16 megabit parts that we taped out and brought to production this year, they are on schedule. People are looking at our parts and Qualifying them, so we are on schedule to getting them hopefully qualified and into early production towards the end of 2024. If I missed anything, please remind me, Nick.

Speaker 5

No, got it all. Thank you. Thank you.

Speaker 2

For the

Speaker 5

We've seen weakness with the FPGA guys that were reported AMD, Intel, Lattice and maybe we're seeing that in your products Slightly declining next quarter. Would you say that's an accurate I noticed that correctly.

Speaker 1

So I don't know if it is specifically the FPGA or not, but like Anuj mentioned, we are Cognizant of the macroeconomic conditions in Asia Pacific. As we said as Anand said, we are We have been strong for the 1st three quarters, but we are starting to see some movement in Q4 and also in early 2024. But that is also convoluted by the data that now that the supply chain constraints are removed, our lead times have actually dropped. So our customers' behavior has also changed with their ordering within the lead times. So it's not quite clear if it's because of the macroeconomic conditions or just because our lead times have changed, But the 2 combined together has changed the behavior and the backlog over the last couple of quarters.

Speaker 5

So just kind of confirming here that your lead times have gotten even lower compared to last quarter and that's Kind of impacting the outlook. Just related to and the reason I asked is kind of last quarter we were saying That the backlog is really strong and it gives us visibility into the near term quarters, but now because lead times are coming down, That isn't as accurate today.

Speaker 2

I guess, this is Sanj. I guess the way I would describe it, So what's happened is the lead times were 52 weeks. They came down to about 30 something weeks and then we reduced them further to about 27, 26 weeks. So we saw lead times come down. And then in addition to that, One of the things you'll see industry wide that you might have noticed is that the supply constraints loosened up as well, right?

Speaker 2

And so what that did was that created What we're observing to be a customer behavioral change. And so they're mostly booking within the lead time And then they're booking some outside the lead time as well, so that's really nice. But it's not as much as they were doing historically. And so now it's kind of come back So let's call it the backlog pre pandemic levels. And so even though it looks relatively normal from that perspective, It has declined from the really rich backlog from a year ago Where there was 52 week lead time, not enough capacity and people were getting worried about getting capacity, right?

Speaker 2

So they were just booking well in advance. So that's the observation that we've seen.

Speaker 5

That makes sense. Thanks. And Yes. I'll ask one more. Just on that staying on the backlog, typically takes 12 to 18 months to convert.

Speaker 5

Can you give any detail on how much of your backlog is expected to convert near term versus long term? I know that we are talking some strong growth or some growth in the second half twenty twenty four based on the backlog last

Speaker 1

Sudhak, are you talking about 12 to 18 months of qualification time or did you mean?

Speaker 5

Right, yes.

Speaker 1

Yes. So that the qualification time for that new STD product that we brought out is still 12 to 18 months, and we Expect the early production to be in late 2024, early 2025. So nothing is changed or delayed In that process?

Speaker 2

Yes. I think the way I would explain the pipeline, if you look at the design wins, They're still healthy and they continue to gain traction, right? I think that's part of where you're going. So there is Strong pipeline and we are seeing backlog outside of the lead time, just not as much as before.

Speaker 5

Thanks for the clarification.

Operator

Thank you. And we do have a question from another line. One moment, please. We have a question from Orin Hirschman with AIG. Please proceed.

Speaker 4

Hi. Let's see just one more qualification question on that last topic. In terms of the guidance that you put out for Q4, Does that assume product increases sequentially without being too much more specific unless you want to be?

Speaker 2

Yes. Hi, Oren. This is Anuj. I would say, we're looking at guidance for Q4 relatively flat to Q3 with a similar mix.

Speaker 4

Okay. And you've never mentioned AI before. Where does The product fit in the overall team of AI that only if it becomes the actual a Piece of IP within an SDGA, can you go through that a little bit more? And are you mentioning because there are customers that have interest?

Speaker 1

Yes. So the hi, Arun, this is Sanjeev. So the solution that we developed for The FPGA market for the instant on FPGAs, the requirements for the AI inference engines are very similar to the requirements for the for that instant on FPGA, namely you want it to be Low standby or 0 standby current, and you wanted to be nonvolatile, and then you needed to be extremely fast so that you're comparing an image, For example, with something that the GPU processed and brought to the edge for comparison. So this solution basically applies to both. And we've had some early discussions with some of the R and D folks looking at some AI solutions and there seems to be good compatibility.

Speaker 1

Again, it's only in the early stages, but it's something that we are hoping to focus on and over the next year, year and a half As a new focus for the company.

Speaker 4

Is there enough density in these parts to be able to do anything practical on the AI side? Do they have to be chained together? And how would it work?

Speaker 1

So it's mostly targeted towards edge AI, Oren, where they don't require very high density. It's not for the servers where they would require gigabits and much higher densities. But for the AGI, we have plenty of density. I mean, we meet the density requirements for the AGI applications.

Speaker 4

Okay. And just one more follow-up. You had mentioned the second It's been on FPGA development. What's going on with the first one and is the timing what is the timing like on both of these?

Speaker 1

So we are so both the programs are active as of Q4 of 2023. So the original one with QuickLogic and SkyWater, that is progressing just fine. We are making Our progress on the deliverables and continuing forth with that. And then this is a new program that the QuickLogic has Been awarded from the U. S.

Speaker 1

Government, but it actually uses CMOS from a different vendor, but has a similar requirement as far as solutions are concerned as the FPGA solutions are concerned. So these two programs are going to run-in parallel at least for the next couple of quarters.

Speaker 4

Which one is the second one though for commercial use or for governmental use?

Speaker 1

They're both for government use, Oren.

Speaker 4

And I know you've mentioned before you're working with some of the commercial FPGA vendors on commercial products. Any progress there on the Instant On application?

Speaker 1

So the other solution that we're looking at for the FPGA was basically to replace the traditional NOR flash memory with this STDM RAM 64 meg and 16 meg that we brought out and that work is ongoing.

Speaker 4

Okay. Thanks so much. Sure.

Operator

Thank you. Yes, I don't see any further questions in the queue. I will pass it back to Anuj Agarwal for his final comments.

Speaker 2

With that said, we conclude today's call. Thank you all for joining us and we look forward to updating you on our progress next quarter. Thank you.

Operator

Thank you everyone for participating and you may now disconnect.

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Key Takeaways

  • Q3 revenue of $16.5 million beat guidance (up 8% year-over-year) and GAAP net income of $2.4 million marked the 10th consecutive profitable quarter.
  • Operating cash flow of $3.6 million in Q3 (year-to-date $11.1 million) and a cash balance of $34.9 million underscore Everspin’s debt-free position and financial strength.
  • Everspin expanded its STT-MRAM lineup with the XPi family (4–64 Mb) in a smaller DFN package and an extended –40 °C to 105 °C range, with production on track for Q1 2024.
  • The company signed new radiation-hardened MRAM agreements—one to develop reliability models for Toggle MRAM and another licensing STT-MRAM for a strategic FPGA—building on existing government programs.
  • With alleviated foundry constraints and solid backlog visibility into early 2024, Everspin expects Q4 revenue of $15.4–16.4 million and GAAP EPS of $0.01–$0.06.
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Earnings Conference Call
Everspin Technologies Q3 2023
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