Everspin Technologies Q2 2023 Earnings Call Transcript

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Provided by Quartr
August 2, 2023

There are 5 speakers on the call.

Operator

Afternoon, and welcome to the conference call to discuss Everspin Technologies Second 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, August 2, 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 August 3, 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 statement 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 hereof 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 financial closing procedures, final judgment 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 and financial information in GAAP and non GAAP terms. Included in the company's press release are definitions and reconciliation 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, Sanjeep Agarwal. Sanjeep, please go ahead.

Speaker 1

Thank you, operator, and thanks everyone for joining us on the call today. Everspin delivered quarterly revenue of $15,700,000 above the high end of guidance, a 7% increase year over year. We were GAAP net income positive for the 9th quarter in a row, which continues to be a strong focus for the company. A few highlights for Q2 2023. Cash flow from operations was $6,300,000 putting us at $7,500,000 year to date.

Speaker 1

We continue to operate debt free while increasing profitability. In Q2, we started sampling our new Xpi family of STT MRAM products from 4 megabit to 16 megabit in BGA and DFN packages with production planned in Q3 of 2023. As a reminder, we taped out this family of products in Q4 of 2022. In response to our customer requests, we have introduced a new version of our Xpi family of STDM RAM products from 4 megabit to 128 megabit that extends the operating temperature from industrial temperature, that is minus 40 C to 85 C to extended temperature, which is minus 40 C to 105 degrees C. We exceeded expectations on our radiation hard programs to deliver STT MRAM based solutions for a high density memory array and a distributed configuration memory for instant on FPGAs with multiple time programmability.

Speaker 1

For our business outlook, our product backlog for balance of 2023 and into 2024 as of June 30, 2023, continues to be high, although we are experiencing some headwinds from the semiconductor downturn. We continue to alleviate some of our foundry supply chain constraints, which is helping us address our unfulfilled toggle demand. Over the past year, Everspin has introduced 2 Xpi family of STT MRAM products integrated on 28 nanometer CMOS with the densities ranging from 4 megabit to 128 megabit. These products are available in the industrial temperature range of minus 40 C to 85 C. These products will enable our customers to simplify their system architecture and easily replace legacy memory components like SRAM and FRAM.

Speaker 1

Based on customer feedback, we are now planning a new family of Xpi STT MRAM products with densities from 4 megabit to 128 megabit for the extended temperature operating range of minus 40 C to 105C. This enables our customers in all segments to use these parts in harsher environmental conditions. Engineering samples are available now upon request and will be available in production volumes in Q4 of 2023. As discussed in the last earnings call, Everspin is designing a high density, which is greater than 256 meg, STT MRAM discrete product for discrete NOR flash replacement. The first product in this family of 1 gigabit density is on schedule for 2024 tape out and for engineering samples.

Speaker 1

This family of products would be ideal for replacing NOR and FPGA systems to store configuration memory and simultaneously enabling 100x faster over the air updates. Everspin has added ion beam etch capability to its 8 inches STT MRAM line in Chandler. We are excited about this capability as it enables Everspin to develop the next generation MTG material stack and etch process. This capability will reduce the development costs and our time to production when our MTJ process is transferred to our partners' 12 inches line on advanced CMOS nodes. At present, this ion beam etch tool is being used for our radiation heart STT MRAM programs and is yielding promising results.

Speaker 1

As you know, Everspin has 2 active radiation heart programs to deliver STT MRAM solutions: 1, a high density memory array and 2, a distributed configuration memory for instant on FPGAs with multiple time programmability. As it relates to the STT MRAM portion of this project, Everspin met its obligations and the delivered solution exceeded the specs defined for the FPGA. This included a demonstration of the integration scheme and the MTJ stack for the STT MRAM solution and the performance of the Everspin circuit design. In the next phase of the project, this solution will be integrated on CMOS wafers with the FPGA fabric and optimized for performance. This design is a revolutionary approach that enables distributed STT MRAM as a configuration memory in a FPGA, thus extending MRAM in a new application use case.

Speaker 1

I will now turn it over to our CFO, Anuj Agarwal, who will take you through our Q2 financials and Q3 2023 guidance. Sanjiv?

Speaker 2

Thank you, Sanjiv, and good afternoon, everyone. As part of the Q2 2023 financial results, Everspin Technologies is pleased to announce its 9th consecutive quarter of positive net income. In addition, we generated positive cash flow from operations of $6,300,000 during the quarter. We delivered solid quarterly results above the high end of guidance with revenue of $15,700,000 compared to $14,800,000 last quarter $14,700,000 in the Q2 of 2022. We also had positive net income of $3,900,000 and positive cash flow from operations of $6,300,000 for the Q2 of 2023.

Speaker 2

MRAM product sales in the 2nd quarter, which includes both Toggle and SDT MRAM revenue was $13,400,000 compared to $13,800,000 in the prior quarter and an increase from $13,200,000 in Q2 'twenty two. Licensing, royalties, patents and other revenue in the 2nd quarter increased to $2,300,000 compared to $1,100,000 in Q1 2023 $1,500,000 in Q2 2022. Shipments to suppliers for our end customer who we serve with Our high density STT product for data center applications represented 7% of revenue in the quarter versus 11% of revenue in Q1 and 15% in Q2 2022. Turning to gross margin, GAAP gross margin for the Q2 of 2023 was 58.4% versus 56.8% in the prior quarter and 58.4% in Q2 2022. GAAP operating expenses for the Q2 of 'twenty three were $7,600,000 versus $7,700,000 in the prior quarter and $6,900,000 in the Q2 of 2022.

Speaker 2

The increase in operating expenses in the quarter compared to Q222 was primarily driven by increased cost to support the Xpi family of STT product that is currently in low volume production. We are pleased to report a Q2 2023 positive net income of $3,900,000 or $0.19 per basic share based on 20,700,000 basic weighted average shares outstanding. This compares to a GAAP net income of $800,000 or $0.04 per basic share in the Q1 of 2023 and net income of $1,700,000 or $0.08 per basic share in the Q2 of 2022. Basic EPS of $0.19 was better than the high point 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.

Speaker 2

For Q2 2023, adjusted EBITDA was $5,400,000 compared to $2,300,000 in the prior quarter and $3,300,000 in Q2 2022. Cash and cash equivalents ended the quarter at $30,800,000 compared to $24,200,000 at the end of the prior quarter and $23,100,000 in Q2 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 and from receiving a $2,000,000 employee retention tax credit under the CARES Act during the quarter. Cash flow from operations was healthy at $6,300,000 for the current quarter. As mentioned during the Q2 of 2023, Everspin received a one time employee retention tax credit refund from the United States Treasury totaling $2,000,000 The refund was received pursuant to provisions within the CARES Act.

Speaker 2

Everspin recorded the one time employee retention tax credit within our other income during the Q2 of 2023. Turning to our Q3 20 Everspin is cautiously optimistic. Demand for our Toggle products remains strong and we continue to see increased demand for our Xpi family of STT products. Everspin expects total revenue in a range of $15,400,000 to $16,400,000 Everspin expects GAAP net income per basic share to be between $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, Everspin reported another quarter, now 9th in a row of profitability. We are excited to see the early adoption of our Xpile family of STT MRAM products covering densities from 4 megabit to 128 megabit. We expect to further enhance our ability to serve the market with the extended temperature offering from minus 40 C 205C of this ex SPIE STDM RAM family. Everspin is successfully navigating the slowdown with a healthy backlog and good visibility into the second half of twenty twenty three and early twenty twenty four.

Speaker 1

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

Operator

Thank you. One moment for our question. I'm showing we have a question coming from the line of Rajvind Gill with Neeham, your line is open.

Speaker 3

Hey, this is Nick Doyle. Great quarter. Congrats on the good numbers. My first question would just be, I'd assume that the licensing and gross margin come down next Quarter, maybe you could just talk about what drove the big bump in licensing this quarter and what you're thinking moving forward. I would assume, like I said, they would come down.

Speaker 3

So really that we're seeing that the products are getting a nice uptick. Is that coming from Toggle or STT?

Speaker 2

Thanks. Hi, Nick. This is Anuj. Yes, so this quarter, 58.4 percent gross margin, is a pretty healthy gross margin compared to our internal model that we've shared with everyone. We don't typically give guidance on gross margin, but I'll say that the licensing deals are richer in gross margin and so that's What has enabled us to get the high gross margin this quarter.

Speaker 2

It's hard to predict in future quarters how it will look because There is some lumpiness, if you will, on when activities are being completed and things progress as we get into future quarters. But we do expect that the licensing project will have a higher gross margin going forward.

Speaker 3

Okay. And I think in the past you've talked about that you expect Toggle to grow sequentially over time. So do we still expect that and what's driving that? And maybe it's related to the supply constraints. I think you mentioned That they're getting a little better.

Speaker 3

Are you still seeing constraints at 180 nanometer?

Speaker 2

Yes. So the Toggle revenue continues to be strong and fairly consistent and growing. So if you look at our design wins over time, we continue to see strong design wins in Toggle space, we've experienced that last 2 years. The last couple of quarters this year, We've had very strong design wins and so we expect those projects to start translating into revenue nicely in the next year or so. So we expect continued growth in Toggle from that standpoint.

Speaker 2

From an SDT standpoint, Within the data center, we've shared with everyone that that's been relatively sluggish and challenging. I think that continues To be a soft part of the market, if you will, for us. But then if you look at our Xpi family of products within STT, That continues to also be exciting. So as Sanjeev mentioned, we have another cut down version of the product that's come out relative to what customers need and what they've requested. And we're seeing some nice design wins in that space.

Speaker 2

And so as we look into the future, we expect those design wins to start translating into revenue.

Operator

Thank you. And our next question coming from the line of Sadeem Mihwali from Craig Hallum. Your line is open.

Speaker 4

Hey, thanks for taking my question. This is Shadi Mowale filling in for Richard Shannon at Craig Hallum. I just got a question on if you guys can go a little bit more in-depth on the supply chain constraints that you're experiencing and what the unfilled demand looks like?

Speaker 2

Hi, Shelly. This is Anuj again. So, yes, let me kind of talk a little bit about the constraints. So we continue to be constrained on our 180 nanometer products. And so as you know, we buy our CMOS wafers from TSMC And we're working very closely with them in order to get the product that we need to fulfill the demand that we have.

Speaker 2

And so that continues to be an ongoing discussion and partnership with them as we try to get more wafers to get the product out. So I think that's Continuing to be a challenge. From a backlog standpoint, the backlog continues to be very healthy. So I'll just kind of reiterate The things we've said in the past, we're seeing bookings now going into the second half of twenty twenty four. There's new orders outside the lead times, And we're continuing to see increased bookings within the lead times.

Speaker 2

So from that perspective, things are looking good. We do continue to see Some cancellations and push outs, but that's limited and I would say probably very normal if you look at the historical trends. So things are looking promising from a backlog perspective.

Speaker 4

Great, great. That's great to hear. And then just got a quick follow-up question On the visibility to feature sales with your largest customer and then if revenues have bottomed out with them.

Speaker 2

So, yes, For the data center customer, they are 7.3% now of our total revenue. I think it's A couple of different things, right? So part of it is mix. So as we have increased RadHard projects, Increasing in revenue or becoming a larger part of our total revenue. And as Toggle continues to grow and our new xFi family of products Continues to develop.

Speaker 2

We might see this particular customer become a smaller concentration of the revenue, which is a good thing, right? It limits Their impact to the business, but we have seen some softness from them that's continued.

Speaker 1

Yes, which is consistent with the rest of the data center market. So it's not something unique to Everspin or a surprise.

Speaker 4

Thanks guys. That's all I had for me and congrats on the solid quarter.

Speaker 1

Thanks, Shadi.

Speaker 2

Thank you.

Operator

Thank you. I'm not showing any further questions in the queue at this time. I will now turn the conference back to Anish for any closing.

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 and the next quarter's call. Operator, you may now disconnect the call.

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Key Takeaways

  • Financial performance: Q2 revenue of $15.7 M beat the high end of guidance and rose 7% YoY, marking the 9th consecutive quarter of GAAP net income ($3.9 M) and $6.3 M of operating cash flow.
  • New STT MRAM products: Sampling of the Xpi family (4–16 Mb) began in Q2 with volume production in Q3, and an extended temperature version (4–128 Mb, –40 °C to 105 °C) is planned for Q4 availability.
  • Advanced roadmap: A >256 Mb STT MRAM discrete product for NOR flash replacement is on track for 2024 tape-out and engineering samples, targeting instant-on FPGA configuration and 100× faster OTA updates.
  • Radiation-hard success: Two radiation-hard STT MRAM programs exceeded specs by delivering a high-density memory array and distributed FPGA configuration memory with multiple-time programmability.
  • Operational outlook: Remaining debt-free with a strong backlog into H2 2023 and early 2024, Everspin is easing 180 nm supply constraints and guiding Q3 revenue of $15.4–16.4 M with GAAP EPS of $0.01–0.06.
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Earnings Conference Call
Everspin Technologies Q2 2023
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