EVERSPIN TECH Q1 2023 Earnings Call Transcript

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May 3, 2023

Key Takeaways

  • Everspin delivered Q1 revenue of $14.8 million, achieved GAAP net income of $0.8 million for the eighth consecutive profitable quarter, and generated $1.2 million in operating cash flow.
  • As of Q1 end, the company paid off its line of credit and term loan in full, rendering Everspin fully debt free.
  • The first silicon for the new XPi family of STT MRAM (4–16 Mb on 28 nm CMOS) has been taped out with engineering samples now available, complementing the existing 16–128 Mb lineup and securing early design wins in industrial and aerospace applications.
  • Everspin reports a healthy product backlog into 2023–2024, is easing supply‐chain constraints to meet strong Toggle MRAM demand, and guides Q2 revenue of $14.5–15.5 million with GAAP EPS of breakeven to $0.05 per share.
  • The high‐density (>256 Mb) discrete STT MRAM for NOR‐flash replacement is in design phase on 22 nm technology and remains on schedule for production in 2024, targeting FPGA configuration memory and enabling 100× faster over-the-air updates.
AI Generated. May Contain Errors.
Earnings Conference Call
EVERSPIN TECH Q1 2023
00:00 / 00:00

There are 5 speakers on the call.

Operator

Afternoon, and welcome to the conference call to discuss Everspin Technologies First 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, May 3, 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 expectation of Everspin's future business, financial performance and goals, customer and industry adoption of MRAM's 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 May 4, 2023, and other SEC filings made from time to time in which we may discuss risk factors associated with investing in Eversmith. 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 information available as of the date thereof and are subject to further review by Everspin and its external auditors. Our actual results may differ materially From these estimates as a result of the completion of our financial closing procedures, financial adjustments and other developments arising between now and the time that our financial results for this period are finalized.

Operator

Additionally, The company's press release and statements made during this conference call will include discussions of certain measures of 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 in 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, Sanjit Agarwal, Sanjit, please go ahead.

Speaker 1

Thank you, operator, and thanks everyone for joining us on the call today. Everspin delivered quarterly revenue of $14,800,000 which is at the high end of guidance and a 3% increase year over year. We were GAAP net income positive for the 8th quarter in a row, which continues to be a strong focus for the company. A few highlights for Q1 2023. During Q1, we paid off our line of credit and term loan in full.

Speaker 1

As of the end of Q1, Everspin is debt free. Everspin's Xpi family of STT MRAM products was awarded Best in show memory and storage category at the Embedded World Exhibition and Conference in March of 2023. We successfully completed the first silicon for our new XPI family of STT MRAM products from 4 megabit to 16 megabit On 28 nanometer CMOS that was taped out in Q4 of 2022, engineering samples are now available for this family of products. We are starting to see some early design ins and wins for our Xpi family of SED MRAM products Density is from 4 megabit to 128 megabit. For our business outlook, product backlog for balance of 2023 and into 2024 as of March 31, 2023 continues to be high, although we are seeing low levels of cancellations, push outs and pull ins.

Speaker 1

We continue to alleviate some of our foundry chain supply chain constraints, which is helping address our unfulfilled Toggle demand. A little bit about our technology. As mentioned in the last earnings call, Everspin had taped out a new Xpi family of STT MRAM products On 28 nanometer CMOS with densities from 4 megabit to 16 megabit, we are excited to report That we have verified functionality on first silicon and engineering samples are now available to our customers. As a reminder, in 2022, we had introduced 16 megabit to 128 megabit density xSPY STT MRAM Product on 28 nanometer CMOS. With these 2 X5 family of STT MRAM products, our customers have access to densities ranging from 4 megabit to 128 megabit.

Speaker 1

These products will enable our customers to simplify the system architecture And easily replace legacy memory components like SRAM and FRAM. They are ideal for use in electronic systems such as industrial IoT, Network and enterprise infrastructure, process automation and control, aeronautics and avionics, medical and gaming. Everspin continues to get interest from our customers for a high density greater than 256 megabit discrete STT MRAM part on 2x CMOS node for discrete NOR flash replacement. The first such product is in the design phase and on schedule for production in 2024. When available, this part would be ideal for replacing NOR in FPGA systems to store configuration memory and simultaneously enabling 100x faster over the air updates.

Speaker 1

I will now turn it over to our CFO, Anuj Agarwal, who will take you through our Q1 financials and Q2 2023 Guidance. Anuj?

Speaker 2

Thank you, Sanjeev, and good afternoon, everyone. As part of Q1 2023 financial results, Everspin Technologies is pleased to announce its 8th consecutive quarter of positive net income. We also reached an incredible milestone in paying off our line of credit and term loan in Q1, making Everspin officially debt free. In addition, we generated positive cash flow from operations of $1,200,000 during the quarter. We delivered solid quarterly results at the high end of guidance with revenue of $14,800,000 compared to $15,700,000 last quarter and $14,300,000 in the Q1 of 2022.

Speaker 2

We also had positive net income of $800,000 and positive cash flow from operations of $1,200,000 for the Q1 of 2023. MRAM product sales in the Q1, which includes both Toggle and SDT MRAM revenue, was $13,800,000 compared to $14,600,000 the prior quarter and an increase from $12,700,000 in Q1 2022. Licensing, royalties, patents and other revenue in the Q1 remained consistent with the prior quarter at $1,100,000 compared to $1,700,000 in Q1 'twenty two. Shipments to suppliers for our largest end customer That we serve with our high density STT product for data center applications represented 11% of revenue in the quarter versus 5% of revenue in Q4 and 19% in Q1 2022. Turning to gross margin.

Speaker 2

GAAP gross margin for the Q1 of 2023 was 56.8 percent versus 51.4% in the prior quarter and 58% in Q1 'twenty two. GAAP operating expenses for the Q1 of 2023 were $7,700,000 versus $7,500,000 in the prior quarter and $6,300,000 in the Q1 of 2022. The higher operating expenses in the quarter compared to the Q1 'twenty two That's primarily driven by increased cost to support the XpIE family of SCT product that is currently in low volume production. We are pleased to report Q1 2023 positive net income of $800,000 or $0.04 per basic share based on 20 500,000 basic weighted average shares outstanding. This compares to a GAAP net income of 600,000 or $0.03 per basic share in the Q4 of 2022 and net income of $1,900,000 or $0.10 per basic share in the Q1 of 2022.

Speaker 2

Basic EPS of $0.04 was better than the midpoint of our guidance range, reflecting our Strategic operational discipline and ability to drive profitability in the face of tightening supplies and macroeconomic uncertainties. Adjusted EBITDA continues to remain positive. For Q1 'twenty three, adjusted EBITDA was 2,300,000 compared to $2,100,000 in the prior quarter and $3,100,000 in Q1 'twenty two. Cash and cash equivalents ended the quarter at $24,200,000 compared to $26,800,000 at the end of the prior quarter and $19,900,000 in Q1 'twenty two. The decrease in cash quarter over quarter is a result of Everspin paying off its term loan and line of credit in full during the quarter.

Speaker 2

Cash flow from operations was a healthy $1,200,000 for the current quarter. Turning to our 2nd quarter 2023 guidance. Everspin is cautiously optimistic. Demand for our Toggle products remains strong. Everspin expects total revenue in a range of $14,500,000 to $15,500,000 Everspin expects GAAP net income per basic share to be between breakeven and $0.05 primarily influenced by expenses related to The XPi family of ST product development and price increases from our suppliers.

Speaker 2

I'll now turn it back over to Sanjeev for

Speaker 1

In summary, Everspin reported another quarter, now the 8th in a row of profitability, which is a strong focus for the company. During Q1, we paid off our line of credit and term loan in full, making Everspin debt free as of Q1 2023. Bolstered by our Q1 performance, guidance for the Q2 and our early views into the rest of the year Lead us to believe Everspin is successfully navigating the slowdown in the semiconductor industry. We are pleased That we were able to bring another family of STT MRAM products to our customers and are excited to see their interest and traction with these products. Thank you for joining us today.

Speaker 1

Operator, you may now open the line for questions.

Operator

Thank you. First question will come from Richard Shannon of Craig Hallum. Your line is open.

Speaker 3

Well, hi guys. Thanks for taking my questions. Let's see here. Sanjeev, I wanted to follow-up On one of your remarks here in your second set of comments about navigating the slowdown in semis. I guess in your earlier comments, you also talked about some push outs and pull ins and a little bit of cancellation.

Speaker 3

So I I just want to get a sense of the backlog, whether that's going up or down, where are lead times now when do you expect them to come in and what does that ultimately imply about book to bill in the Q1 and what you think it might be in the second?

Speaker 1

Hi, Richard. How are you doing?

Speaker 3

Doing fine. Thank you.

Speaker 1

Yes. So in the first section, I was basically talking about some push out, some cancellations and pull ins. And that is basically our spin business returning to what we call a baseline. We typically see a little bit of that going on in every quarter. So and in terms of what we are seeing or why I'm saying that we are seeing us successfully navigating the slowdown is because are actually seeing backlog towards the end of 2023 and going into 2024 and it's a pretty healthy backlog and it makes us feel We can actually do pretty well in the year.

Speaker 1

We're actually looking to Grow quarter over quarter and actually do as well as you did last year. Okay.

Speaker 3

An interesting statement about growing quarter to quarter and I think probably the part of that that I'm more interested and I think Investors are specifically thinking about your product revenues. Would you also declare that product revenues can grow quarter on quarter the rest of the year, including Q2?

Speaker 1

Anuj?

Speaker 2

Yes. Hi, Richard. This is Anuj. So product revenue is also doing Very well, right. We're seeing strong growth in Toggle sales.

Speaker 2

And with our XpY product family Coming into low volume production, we're optimistic based on some of the feedback we've gotten from customers and as we begin to get design wins. So we're seeing the ramping of that product as well. And then as you know, the challenges are really around The data center. And so there's still some sluggishness there, but Toggle is going very strong and the Xfi product is ramping nicely.

Speaker 3

Okay, fair enough. Maybe touching on a couple of elements in the financial guidance for the quarter, Always trying to get a sense of what you're thinking about on both on gross margins and OpEx. Let me touch on gross margins for a second. If I look at the last 5 quarters, you had 4 of those 5 Near the levels you just reported in the 4th quarter was a bit below. I think you talked about some mix and yield dynamics in the 4th quarter.

Speaker 3

Would you call out kind of last quarter as more of a normal mix and situation or is it more optimized? I know relative to your long term guidance of 50% to 55% gross margin, a little bit on the high side of that, but you've had some good success in the last four out of five Last quarter. So I want to get a sense of whether you expect that to maintain here or you see the Q1 is more of an optimistic Outcome?

Speaker 2

Yes, yes, sure, Richard. Let me try to answer that. So we're We try to be a little bit cautiously optimistic, I guess, when we provide guidance. And so that's why you see the 14.5% to 15.5% in terms of revenue, just trying to glide slightly higher than Q1 results, right. But I think in terms of gross margin, you are seeing a little bit of product mix benefit in Q1 And some other items.

Speaker 2

So we still think that low to mid-50s, maybe more mid-50s is realistic. And so I would, Without giving guidance, kind of stick with that story for now. And then from an OpEx standpoint, we've shared that we're trying to be Frugal but smart in terms of how we're spending money. And so, there has been an uptick In OpEx related to the new ex buy industrial product and it will continue to be at that levels as we ramp the product.

Speaker 3

Okay, fair enough. And I'll ask one more question, jump out of line here. Maybe to start the conversation on your new Hi, products, Sanjeev. It sounds like you're getting some early stage success in designs and attention here. Maybe if you can give a little Color to where you what family of products or excuse me, which density, what applications you're seeing in an early and then to what degree are we going to see the benefits Coming in this year versus in calendar

Speaker 1

2024? Yes. So I'll probably start with the last question. Most of our design wins and ends are going to be in the industrial space. So I think it's going to be quite challenging to see any Significant revenue in 2023, but best case, you could see some upside in Q4 of this year.

Speaker 1

Okay. In terms of design wins, we're actually seeing it across the range all the way from 4 megabit to 64 megabit and even 128 megabit. But most of the design wins are actually with our first family that we brought out, the 64 megabit native die. Those are the ones that are actually A major part of the sentence that I was or the statement that I was making that we're starting to see early design wins. We do expect the design wins to go up with the new product the second half of this year, once the parts are available to our customers.

Speaker 3

Okay. Perfect. That's great news and glad to see the outlook here going very strongly. I will jump the line guys. Thank you very much.

Speaker 2

Thank you, Richard. Thanks, Richard.

Operator

Thank you. We have another question coming. One moment please. And this will be a follow-up from Richard Shannon of Craig Hallum. Go ahead please.

Speaker 3

Okay. Well, I'll jump back in then. Let's see here a couple other questions. Sanjeet, maybe to follow-up on one of your prepared comments. You talked about this in the last few calls about this leading edge higher density STT that's going to be NOR Flash replacement.

Speaker 3

Sounds like you're seeing some continued progress here. If you were to think about a timeframe by which you'd start to see some benefit from that, when will that be? And are these going to be Difficult, architectural kind of decisions for customers to make? Or is this more drop in replacement and you think it will be a fairly short sales cycle?

Speaker 1

Yes. So the high density part that we're talking about, as far as the revenue is concerned, I think you would start seeing some revenue in 2025 with it going into production sometime in second half of As far as the architecture for this part, it's going to be a drop in part. So it will be a direct replacement For standalone NOR. And so the but the products are still going to be industrial. So I think the qual cycle is still going to be 12 to 18 months.

Speaker 1

So in that sense, it's still going to be a long cycle, but I think there's going to be a drop in making it easier For our customers to put them in their systems.

Speaker 3

Okay, perfect. That's helpful. My last question, I'll jump out of line again, is kind of highlighting your comments a few times in your prepared remarks about Having paid off your debt being debt free for the first time in your public existence, which is fantastic to see. And you've been profitable 8 quarters in a row with good cash balance and very good management of your cost structure here. What does this help you do in terms of being a little bit more aggressive on the growth side of investment or even something that might be inorganic in nature?

Speaker 3

Should we expect to see R and D start to tick up as you find other product areas or can you just just to go into or How should we think about what eventually what looks like to be a nicely growing cash balance?

Speaker 2

Yes, Richard, this is Anuj. Great question. We're continuing to evaluate the product roadmap and looking at where the opportunities are. Obviously, there's a lot of focus on the Xfi family in the near term and the other product that you mentioned in the more longer term. So Based on what we're seeing from a cash flow from operations standpoint and our current cash position, we feel we can Support that ramp and really support the products at that time at this time without borrowing money.

Speaker 2

And so it makes sense right now to pay off the debt, right? If there's other opportunities that come up where we feel like We might have to borrow additional funds. We'll look into that. But I think right now, what we're trying to demonstrate is that This is a viable business. We can be profitable.

Speaker 2

We can generate cash. There's a good amount of cash balance on the balance sheet. The balance sheet is healthy and so we can Or future opportunities and growth from that.

Speaker 3

Okay, fair enough. That makes sense. I think that's all for me guys. A lot and congratulations again on a start to the year.

Speaker 2

Thank you. Thanks again, Richard.

Operator

Thank Our next question will be coming from Arun Hirschman of AIGH. Please go ahead.

Speaker 4

Hi. I can also give congratulations on the very tough environment. Thank God you're showing real progress.

Speaker 2

Thanks, Oren. Thanks, Oren.

Speaker 4

I wanted to just go back to one of the questions that was asked. You got it. You have a great analyst asking great questions. So you didn't leave a lot for anybody else. So And just in terms of the actual you mentioned the design cycle.

Speaker 4

When is the actual sampling you're hoping for in some of the Placement products versus when you actually hope to begin volume production and seeing real revenues. Can you just review that one again?

Speaker 1

Yes, sure. So remember the part that we taped out in 2022, that was a native 64 megabit die, And we were sampling between 8 megabit and 128 megabit. And the new one that we got out is actually from 4 megabit to 16 megabit. So there is an overlap between 8 megabit and 16 megabit going all the way up to 128. So people that were able to use that original die To actually integrate into their systems and start a qual procedure, I think they will benefit from the first dye that we taped out and we will see the benefit For the 8 meg and the 16 meg going into production.

Speaker 1

So it will actually cut down some of the qual cycle. So in that case, let's assume, if it's a 12 month cycle or a 15 month cycle, it probably come down to 9 months based on These samples being available 6 months before this other part that we just brought out. Did I answer your question, Oren?

Speaker 4

Yes. So in terms of design in that's going on already?

Speaker 1

Yes. That is correct, except for the 4 megabit part, which is new now.

Speaker 4

And in terms of the customer feedback, What's the customer feedback like? And how does that how does what have you seen in terms of the niches where you're getting the traction early on?

Speaker 1

Yes. So in terms of customer feedback, there is some very early feedback. It's not very detailed. The part seems to perform to the spec That we have published. So that's always good and that feedback is always appreciated.

Speaker 1

I'm sorry, I forgot the second part of the question,

Speaker 4

Yes, which verticals seeing the

Speaker 1

Yes. So the markets that are seeing traction right now or the early traction is in the aerospace and defense industry And then also in some of the industrial space.

Speaker 4

Okay. And just Going back to some of the work that you've been doing on the your IP Huge open project, dense project. What can you tell us in terms of timing when come Something to you, A, on the licensing side and B, on a revenue product related side, royalty side, I realize that might be very far out.

Speaker 1

So Oren, just to confirm, you were breaking up over there. Are you referring to the QuickLogic FPGA project?

Speaker 4

Yes.

Speaker 1

Yes. So that project is progressing on schedule And I think the tape out for that design, so the tape out for that design is expected In the second half of this year. So we will start seeing some early data On the silicon, which would be a 90 nanometer silicon from SkyWater on which we do the design, so we start seeing some data in 2024, Let's say Q2 or Q3 of 2024. I think the product revenue or the foundry revenue and royalty revenue associated with those products At least 2 years out from there, Oren.

Speaker 4

Okay. Then both you said both product Royalties adds also licensing or licensing happens perhaps happens already or licensing happens gradually when you hit certain milestones?

Speaker 1

The licensing happens gradually over 2023 2024. And then the foundry revenue and the royalty revenue Starts when we go into production, which is probably 25 timeframe.

Speaker 4

Okay, great. One quick question on data center. Any signs of life or bottoming? How would you term the overall picture there?

Speaker 1

So Oren, are you asking about the datacenter products?

Speaker 4

Yes. Just in terms of the overall what's going on there right now, do you think that this kind of stabilized, still declining, coming back?

Speaker 1

I mean, we definitely like Anuj reported, we did better in Q1 compared to Q4, but still We were not as good as we were at the peak at about I think the numbers at Anujpurad was 19% versus 5% in Q4 And then 11% in Q1. So we have recovered some from Q4 to Q1, but we are not seeing indications that we're going to get up to that Up to the 19% levels that we had earlier.

Speaker 4

So and then my follow-up on that question is just in terms of your guidance for the year, Hoping to see some progress quarter to quarter on the product side. Does that take a conservative enough stance Do you know considering what happened on the data center side, meaning that's not assuming any upside of any sorts And data center rather just stable. And do you think stable is a fair assumption even at this point or that assumes data center coming down and other products are making up the gap?

Speaker 2

Yes. Oren, this is Anup. So I think, as you'll see, our concentration with this largest customer Has decreased like Sanjeev was mentioning. But on the flip side, we continue to have strong Design wins and Toggle and that is ramping nicely. The revenue continues to be strong quarter over quarter.

Speaker 2

And in addition to that, we've got the RadHard deals that have increased, other things that are happening. So just naturally now, the concentration It's smoothing out. And as the Xfi product gets more design wins and things happen, that will help As well. But we're fairly conservative on the data center piece, but everything On the other side, it's looking good. Industrial is looking good.

Speaker 4

And my last question just is on the companionship For the FPGA companionship, we demoed. Where is that up to? What's the thoughts on commercialization of it? And I'll end on that.

Speaker 1

We have been in communication with the FPGA Companies to actually integrate our ex PIE family product with their FPGA. So I think it's in early stages and we cannot really comment on that too much, but it is an ongoing process right now.

Speaker 4

Okay. But then saying, are they interested enough that there is some commitment on their part?

Speaker 1

I think it's too early for commitment, but there is enough interest that we are actually continuing to engage and with more than one company To basically end up with a design win with a customer in the FPGA market. With an end customer, I guess. I shouldn't say FPGA market, with an end customer.

Speaker 4

But that's through them or that's through you directly?

Speaker 1

It would be through the FPGA vendor.

Speaker 4

Okay, good. Okay. Congratulations again on the progress.

Speaker 2

Okay. Thank you. Thank you.

Operator

Thank you. And at this time, there are no more questions in the queue. I would like to turn the call back over to management for closing remarks.

Speaker 2

Okay. With that said, we conclude today's call. Thank you all for joining us, and we look forward to reporting our progress and results in the next quarter's call. Operator, you may now disconnect the call.

Operator

Thank you everyone for joining and the call is disconnected. Have a great

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