Everspin Technologies Q3 2024 Earnings Call Transcript

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Provided by Quartr
October 30, 2024

There are 6 speakers on the call.

Operator

Good afternoon, and welcome to Everspin Technologies Third Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen only mode. At the conclusion of management's prepared remarks, instructions will be provided for the question and answer session. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Cassie Patterson, Investor Relations for Everspin.

Speaker 1

Thank you, operator, and good afternoon, everyone. Everspin released results for the Q3 2024 ended September 30, 2024, this afternoon after market close. I'm Cassidy Patterson, Investor Relations for Everspin. And with me on today's call are Sanjeev Agrawal, President and Chief Executive Officer and Matt Cenario, Interim Chief Financial Officer. Before we begin the call, I would like to remind you that today's discussion may contain forward looking statements regarding future events, including, but not limited to, the company's 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.

Speaker 1

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 the company's SEC filings, including the annual report on Form 10 ks and other SEC filings made from time to time in which the company 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, the company undertakes no obligation to update or alter any forward looking statements made on this call whether as a result of new information, future events or otherwise. The financial results discussed today reflect the company's preliminary estimates and are based on the information available as of the date hereof and are subject to further review by Everspin and its external auditors. The company's actual results may differ materially from these estimates as a result of the completion of financial closing procedures, final adjustments and other developments arising between now and the time that the financial results for this period are finalized.

Speaker 1

Additionally, the company's press release and statements made during this call will include discussion of certain material measures 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 on 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 Agarwal. Sanjeev, please go ahead.

Speaker 2

Thank you, Cassidy, and thanks, everyone, for joining us on the call today. We are pleased to report our 3rd quarter results with revenue of $12,100,000 in line with our guidance and EPS of $0.10 ahead of our guidance range. Contributing to our results were a number of key wins during the quarter, including the selection of our 1 gigabit Persist STT MRAM for the IBM Flash Core Module 4 or FCM 4 and the selection of a Persist Toggle MRAM for the Lucid Gravity SUV. We ended the quarter with a strong balance sheet including cash of 39,600,000 dollars Everspin had a number of key advancements and new contracts during the quarter, most notably with Frontgrade and a Department of Defense or DoD contractor that demonstrates the strength of our business and breadth of our product portfolio. I'll start by discussing products for which we recognized revenue in the quarter before discussing new wins and other projects with future revenue potential.

Speaker 2

During the Q3, we started to receive orders and began to recognize revenue for the sale of our Persist 1 gigabit STTM RAM into IBM's Flash Core Module 4 or FCM 4 for data center applications. This is the 4th generation of IBM's FCM that has featured Everspin's 1 gigabit STT MRAM solution. Our Persist solution delivers 2.7 gigabytes per second of both read and write bandwidth, coupled with non volatility and a DDR4 like interface. We expect to provide parts for this product line for approximately the next 2 years. Everspin continued to see modest growth in its product revenue and design wins with its Toggle MRAM Persist products.

Speaker 2

We observed signs of inventory consumption at our customers and a sequential decrease in our distributor inventory. We are also pleased to share our continued strong traction with our 4 megabit to 128 megabit SCT MRAM persist products. Based on our ongoing customer discussions, we remain optimistic about the adoption of our Persist SCT MRAM product line and continue to expect additional design wins to go into production later this year with revenue ramping in 2025. As a reminder, this product family was brought to production last year and is the highest performing persistent memory solution in the industry. Turning to our licensing, royalty, patent and other revenue.

Speaker 2

As I mentioned earlier, we began to recognize initial revenue from the new $9,250,000 contract with Frontgrade Technologies that we announced in August. Under this contract, we are working with Frontgrade to develop a custom radiation hardened STT MRAM macro for embedded solutions using our Persist STT MRAM technology. This deal will support current and future DoD Strategic Radiation Hardened and Low Earth Orbital or LEO Space Systems. Upon successful completion of this first phase of the project, the contract allows for the award of future optional phases. As we noted on previous calls, we are engaged in 2 other RadHard programs that use our STT MRAM technology.

Speaker 2

The first program relates to an ad hoc 64 megabit STT MRAM project, and the second is focused on building a strategic RadHard FPGA. We are pleased to share that both RadHard programs remain on track to move to their respective next phases as we hit our internal 3rd quarter milestones for both programs and recognize revenue. In addition, we continue to recognize royalty revenue from our customers that have licensed our IP in the field of STT MRAM and TMR sensors. Turning to below the line item. During the Q3, we received a $14,600,000 award for the next 2.5 years from a DoD contractor to develop a sustainment plan for our MRAM manufacturing facility to provide continuous onshore MRAM capabilities to their aerospace and defense customers.

Speaker 2

We began to recognize the benefits of this award during the Q3. This award is being recognized in other income as Matt will explain later in his remarks. Now I would like to discuss some of our recent awards that will contribute to revenue in future quarters. Last month, we announced that Lucid Motors has selected our Persist MRAM for use in its recently released Gravity SUV. Lucid selected our product because it meets the AECQ100 Grade 1 specification of minus 40 degrees Celsius to plus 125 degrees Celsius temperature operation.

Speaker 2

This design win is a clear demonstration of the reliability and performance that our MRAM products deliver in demanding environments. We began to ship our Toggle MRAM to support prototypes for this project during the Q3 and expect to continue to recognize revenue for approximately the next 2 years depending on consumer reception of the SUV in the marketplace. We are also pleased to share that in collaboration with Purdue University, we won a project to advance artificial intelligence hardware through the Microelectronic Commons program in collaboration with the Silicon Crossroads Microelectronics Common or SCMC Hub. This project, CMOS plus MRAM hardware for energy efficient artificial intelligence or CHITA will leverage the unique capabilities of MRAM for designing efficient in memory computing hardware fabrics. Everspring will provide its state of the art STT MRAM technology optimized for fast switching and high read margins to support energy efficient AI solutions.

Speaker 2

In addition, Everspin will deploy its manufacturing expertise to fabricate reliable STT MRAM arrays. We were one of the 4 projects to receive funding from the Applied Research Institute, and the project will receive a total of $21,000,000 over 4 years to be distributed across all contributors. Everspin is one of several contributors to this project and we expect to start recognizing revenue in Q4 'twenty four. Earlier this month, we attended the Automotive Chiplet Forum. The event brought together key players from the global automotive ecosystem to discuss how to jointly tackle the inevitable evolution towards chiplet architectures in cars.

Speaker 2

This complemented our attendance at Semicon West in July, where we had a number of meaningful conversations with automotive company about the capabilities of our planned STT MRAM chiplets to manage the vast amounts of data that EVs generate. Through these events and ongoing discussions, we continue to support the development of the ecosystem for our STT MRAM chiplets in the automotive sector. We believe this will expand our market opportunity and enhance our growth over the coming years. As mentioned in the past, our first step would be alignment on the interface for the chiplets and then the protocol that manages the data across this interface. We expect to see chiplets addressing these applications over the next 3 years.

Speaker 2

As a reminder, the chiplet is part of our Unisys Unified Code and Data Memory solutions, which are currently in the design phase. Last quarter, we discussed having entered into a strategic agreement with a leading provider of sensor devices to provide foundry services for the latest generation TMR sensor device on our MRAM line in our Chandler facility. The project is progressing well based on results from the first silicon and we expect to meet our customers' Q4 schedule and milestones. We expect to recognize non recurring engineering or NRE revenue for helping with the qualification. We also expect to recognize foundry revenue starting in Q4 from their initial production order.

Speaker 2

This revenue stream will be recognized in our licensing and royalty revenue. During the Q3, we continue to have meaningful conversations with customers, which we believe will turn into additional design wins for our STT MRAM Persist product over the coming quarters. We are particularly excited to start working on the microelectronics commons project to deploy STT MRAM for the development of energy efficient AI solutions. I will now turn it over to our Interim CFO, Matt DiNordio, who will take you through our Q3 financials and Q4 2024 guidance.

Speaker 3

Matt? Thank you, Sanjeev, and good afternoon, everyone. For the Q3, we are pleased to deliver quarterly results with revenue of $12,100,000 in line with our guidance range of $11,500,000 to $12,500,000 compared to $16,500,000 in the Q3 of 2023. MRAM product sales in the Q3, which include both Toggle and STT MRAM revenue was $10,400,000 compared to $13,500,000 in Q3 'twenty three. This year over year decrease was a result of a decline in product sales due to the timing of customer demand.

Speaker 3

Licensing, royalty, patent and other revenue in the 3rd quarter decreased to $1,700,000 compared to $2,900,000 in Q3 'twenty three due to lower royalties and a decline in revenue from our RadHard projects. Turning to gross margin. Our GAAP gross margin was 49.2% for the 3rd quarter, down from 60.2% in Q3 'twenty three. The decrease was due to a decline in product sales and licensing revenue related to our RadHard deals. GAAP operating expenses for the Q3 of 2024 were $8,100,000 compared to $7,900,000 in the Q3 2023.

Speaker 3

The slight increase in OpEx was largely due to expenses related to our new ex SPI family of STT MRAM products. In August, as Sanjeev mentioned, we announced a strategic award to develop a long term plan to provide manufacturing services for aerospace and defense segments. Pursuant to the award, Everspin may receive cash payments totaling up to approximately $14,600,000 upon the achievement of certain technical tasks and deliverables over a span of 2.5 years. Due to the nature of the agreement and our performance obligations, we will recognize these payments over time as other income below the line. In the Q3 of 2024, the company recorded $4,000,000 of other income relating to this award.

Speaker 3

Driven primarily by this award, we recorded 3rd quarter GAAP net income of $2,300,000 or $0.10 per diluted share, substantially ahead of our guidance range of a loss of $0.05 to 0 point 1 $0 based on $22,000,000 weighted average diluted shares outstanding. This compares to net income of $2,400,000 or $0.11 per diluted share in the Q3 of 2023. Adjusted EBITDA was $4,200,000

Speaker 2

compared

Speaker 3

to $4,000,000 in Q3 2023. Looking ahead, we remain on track to maintain positive GAAP net income in Q4. We are pleased that our balance sheet remains strong and debt free. We ended the quarter with cash and cash equivalents of $39,600,000 up from $36,800,000 at the end of the prior quarter. Looking ahead, we continue to believe our capital is sufficient to meet our anticipated capital requirements for the next year.

Speaker 3

Cash flow generated from operations was $2,800,000 for the 3rd quarter. Turning out to guidance. Looking to the remainder of 2024, we believe that product revenue will be essentially flat with the Q3. We continue to see positive signs of recovery in inventory consumption of our customers, particularly in Europe, and expect this to drive additional demand in the coming quarters. Taking these factors into consideration, we expect Q4 total revenue in the range of $12,000,000 to 13,000,000 dollars and GAAP net income per diluted share to be between breakeven and $0.05 In summary, we are pleased with the continued progress we have made with our customers in the form of design wins and new contracts.

Speaker 3

Going forward, we remain committed to scaling our business and converting additional design wins to revenue. Operator, you may now open the line for questions.

Operator

And our first question comes from Quinn Bolton with Needham and Company. Your line is open.

Speaker 4

Hey, this is Shadi Mittwally dialing in for Quinn Bolton. Thanks for taking my question, guys. I'd like to start off on the onshore MRAM strategic award. Sorry if I missed this, but are you guys able to give more details on why this is getting recognized in other income versus actual revenue?

Speaker 3

Yes. Thank you for the question. We analyzed the contract and the agreement and our performance obligations against the revenue recognition standard ASC 606 and found that it did not squarely fit within that. Because of that, we have decided to recognize it as other income below the line.

Speaker 4

Great. Thanks for that. And then my follow-up question is on gross margin. Gross margin was relatively flat sequentially, even though licensing revenue ticked up nicely. So I was wondering if you guys can give some more details on what kept margins flat?

Speaker 3

I think we continue to see the effect of the lower demand of our Toggle products, which run through the Chandler fab facility. So we are having to absorb the fixed costs associated with that facility against a smaller amount of units that are flowing through that fab.

Speaker 5

But as we move forward,

Speaker 3

we would expect that to improve.

Speaker 4

Right. Yes, that makes sense and that's all for me.

Operator

Thank you. Our next question comes from Richard Shannon with Craig Hallum. Your line is open.

Speaker 5

Hi guys. Thanks for taking my questions as well. I'm going to follow-up on the topic of the DoD contract you're recording in non operating income here. I guess two questions from me. First of all, is this something that's recognized ratably every quarter milestone based or otherwise?

Speaker 5

And then can you kind of maybe qualitatively or quantitatively describe how much is built into your guidance for the Q4?

Speaker 3

Thank you, Richard. Yes, so as I said, it did not fit into the criteria of the accounting standard for revenue recognition. However, we analyzed and we are using some principles of the revenue recognition by analogy, meaning we will recognize it over the 2.5 years ratably based on the efforts and some of the milestones that are laid out in the agreement.

Speaker 5

Okay. So I guess I'm trying to fit the numbers here into the guidance and trying to see how these work together here and it seems to be implying either higher OpEx or lower gross margins, all the things being equal to kind of get to the midpoint of the EPS guide here. Is there dynamics that are hitting either of those categories that help explain this or is this just some conservatism built in here?

Speaker 3

I think it might be a combination of both. We have factored in what we believe might be contributing from the DoD agreement that we've discussed. And we are also contributing some of the contribution that Sanjeev had mentioned with those other RadHard projects that we have and that and combined with our continued STT MRAM data center strength.

Speaker 5

Okay, fair enough. That's my 2 questions. I will jump in the line guys. Thank you.

Speaker 2

Thank you, Richard.

Operator

Thank you. And our next question comes from Richard Shannon with Craig Hallum Capital Group. Your line is open.

Speaker 5

All right. Well, lucky me, I get jump right back in here. Let's see here, Sanjay, maybe a question or 2 for you here. So Matt's guidance, as you mentioned in his prepared remarks, is for product revenues being flat here. Last quarter and again this quarter you talked about some signs of inventory to get the word use stabilization or improvement or whatever.

Speaker 5

But seeing flat products cadence here to the Q4 doesn't necessarily show that. Maybe you can just help us understand those dynamics here? And then when should we expect to see sequential growth kind of layering in over time? And then maybe help us kind of build in how much the new Persist products are going to help you do that?

Speaker 2

Yes, good question, Richard. So let me start with the Persist, STD MRM product that we brought to the market last year. We continue to see design wins on that project with those products. But as you know, the qualification time is anywhere from 18 12 to 18 months. So I don't think we're going to see significant product revenue from that part or that product line in Q4, but we do expect it to see some ramp in 2025.

Speaker 2

And as far as the product revenue with respect to our existing products, the Toggle MRAM and the 1 gigabit, we have a very modest growth built in going in from Q3 to Q4. It's just that the signals that we're seeing are very difficult to decipher. Some are positive and some are not so positive. So there is some conservatism built into the plan over here.

Speaker 5

Okay. Maybe touching on that last comment, any way you can describe where end markets geography where you're seeing this? In the past, you talked about some weakness in Europe and I think Japan. I think Japan maybe even hit by some currency dynamics there. Maybe you can help us kind of peel the layer back on that one a little bit, Sanjeev?

Speaker 2

Right. So I think like we've discussed in the past, I think Japan continues to be a challenge. And then in Europe, you've seen that Germany seems to be going through some turmoil as well. So I think those two combined are impacting our revenue profile for Q4 as well.

Speaker 5

Okay, fair enough. I will jump on the line guys. Thank you.

Speaker 2

Thank you.

Operator

Thank you. And our next question comes from Quinn Bolton with Needham and Company. Your line is open.

Speaker 4

Hey guys, thanks for taking my follow-up. This is more of a technical question on MRAM's persist family of products, but maybe can you guys clarify the differences between Persys, Unisys and Agilysys? And then maybe talk about the different use cases and markets those product lines specifically address?

Speaker 2

Sure. I can give it a shot. So the Persist family, the way to think about it is, you're looking for very fast read and writes and you're looking for a large number of read and writes. So for example, 10 to 12, 10 to 14 or larger read and writes, and you're looking for basically persistence in the operating temperature range, which is anywhere from minus 40 to 125 degrees C if it's automotive or minus 40 to 85 if it's industrial grade. And that's the Persys family that includes our 1 gigabit SDDM RAM that we are shipping to the IBM Flash core modules.

Speaker 2

It includes the new product family that we brought to the market last year, the XSPI family that goes from 4 megabit to 128 megabit. And then our Toggle MRAM family, which is basically we've been selling since our inception in 2,008. So all of those products come into the Persys family and they have this characteristics that I was talking about where you have fast data read and writes or data logging and then unlimited number of read and writes in the operating temperature range, which could be automotive or industrial. The Unisys product family is basically you're looking for not so many reads and writes. You're looking for, let's say, 1,000,000 to 10,000,000 or 100,000,000 read and writes only, okay.

Speaker 2

And you're looking for, again, fast read and writes. That is the built in advantage of STDM RAM compared to other technologies out there that include NOR flash or NAND flash or even resistive RAM, okay. So that's the Unisys family. That includes the chiplets that I was talking about during my script. And it also includes any SoC type solutions using this type of product.

Speaker 2

And Agilist is actually our forward looking where we are still in a research environment. We're trying to build a fast data logging, 0 standby current and trying to match the speeds of an SRAM. And that's the project that we talked about with Purdue and the Emmy Commons that we're just getting started and we're really excited to show what SED MRAM can do over there. Now backing up, persist applications, you should think of industrial automation like PLC Computers, you can think of gaming, casino gaming and you can think of medical and aerospace and defense industry. For the Unisys products, you should think about automotive, FPGA configuration memory and also industrial applications as well over there.

Speaker 2

And with the Agilist, it's going to be mostly artificial intelligence, AI solutions on the edge. I think I can speak a lot more to it, but I think this is enough for now. So if you have any further questions, we can take it offline maybe, Shadi.

Speaker 4

Awesome. Yes. No, thanks for all the color on that.

Speaker 2

Sure.

Operator

Thank you. Our next question comes from Richard Shannon with Craig Hallum. Your line is open.

Speaker 5

Sanjay, just one question for me, kind of touching on one of your prepared remarks and something you just mentioned here, but the Purdue program. Maybe you can talk to us a little bit about any more detail that what you expect out of this over what time, any sort of financial contributions to your model over time, etcetera?

Speaker 2

So as far as the financial contributions over time, Richard, we haven't actually signed the contract with Purdue. So I don't have visibility into that, that I can talk about today. But as far as the output of the product is concerned, I think we're going to learn how to tune our SDD MRAM technology for AI solutions. And one thing you already know is when you're looking for very fast, medium rights and you're looking for much higher signal margin for REITs because it's going to be a really intensive application. And then you got to basically build the fabric around it to be able to transfer the data from an edge to the center to the data center.

Speaker 2

I think that is what we're going to learn out of this. As far as the product is concerned, I think we'll take the learning and have to go and build a product outside of this project. This project is not going to lead to any product solutions that we can talk about today.

Speaker 5

Okay, fair enough. That's a great detail. That's all for me. Thank you.

Speaker 2

Thank you.

Operator

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Sanjeev Agarwal for closing remarks.

Speaker 2

Thank you, operator, and I want to thank everyone again for joining the call today. I also want to take the advantage of those of you that are actually celebrating the Indian festival Diwali. I want to wish you guys all a happy Diwali And also for those of you guys that are celebrating Halloween, happy Halloween. And talk to you at the next earnings call. Thank you.

Operator

This concludes today's conference call. Thank you for participating. You may now disconnect.

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Key Takeaways

  • Q3 Financials: Revenue of $12.1 M met guidance and GAAP EPS of $0.10 beat the range, with cash on hand of $39.6 M and a debt-free balance sheet.
  • Major Design Wins: Selected for IBM Flash Core Module 4 with 1 Gb STT MRAM and for Lucid’s Gravity SUV with Toggle MRAM, plus secured a $9.25 M Frontgrade contract and a $14.6 M DoD sustainment award.
  • Product Pipeline Growth: Persist SCT MRAM (4–128 Mb) products are in production with revenue ramps expected in 2025, while STT MRAM chiplets and TMR sensor foundry services are progressing toward Q4 milestones.
  • Future Revenue Streams: Advancing two additional radiation-hard programs and a $21 M AI hardware project (CHITA) with Purdue under the Microelectronics Commons, with initial revenue slated for Q4 2024.
  • Q4 Guidance: Total revenue is forecast at $12–13 M, flat sequentially, driven by customer inventory recovery, with GAAP net income expected between breakeven and $0.05 per share.
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