Netlist Q1 2025 Earnings Report

Netlist EPS Results

• Actual EPS: -$0.03
• Consensus EPS: -$0.02
• Beat/Miss: Missed by -$0.01
• One Year Ago EPS: N/A

Netlist Revenue Results

• Actual Revenue: $28.98 million
• Expected Revenue: $30.00 million
• Beat/Miss: Missed by -$1.02 million
• YoY Revenue Growth: N/A

Netlist Announcement Details

• Quarter: Q1 2025
• Date: 5/6/2025
• Time: Before Market Opens
• Conference Call Date: Tuesday, May 6, 2025
• Conference Call Time: 12:00PM ET

Netlist (OTCMKTS:NLST) is a technology company specializing in the design and development of high-performance memory and storage subsystems for enterprise and data center applications. The company’s product portfolio encompasses advanced memory modules, nonvolatile memory express (NVMe) solid-state drives and intelligent memory expansion systems. These solutions are engineered to boost memory density, bandwidth and overall system performance in hyperscale, cloud computing and high-performance computing environments.

Headquartered in Irvine, California, Netlist serves customers across the Americas and Asia through a combination of direct sales and channel distribution partners. The company markets its offerings under brands such as HyperCloud memory subsystems and HyperVault storage SSDs, delivering plug-and-play modules that integrate with leading server and storage platforms. Netlist’s engineered memory architectures aim to address growing demands for faster data access, reduced latency and improved system utilization in modern IT infrastructures.

Founded in 2000, Netlist has built a portfolio of issued and pending patents covering its proprietary memory interconnects and module designs. Over the years, the company has pursued strategic agreements and legal actions to protect its intellectual property and support technology licensing opportunities. In late 2016, Netlist initiated a Chapter 11 restructuring to realign its balance sheet and emerged in 2017 with a renewed focus on operational efficiency and growth in target markets.

Led by founder and Chief Executive Officer Charles Liang, Netlist’s management team combines backgrounds in semiconductor design, system architecture and enterprise computing. The company continues to invest in research and development to evolve its memory and storage offerings, collaborating with original equipment manufacturers and system integrators to integrate its solutions into next-generation server and storage platforms.

Netlist Q1 2025 Earnings Call Transcript

Key Takeaways

• Q1 revenue of $29 million met expectations, and while tariffs cloud visibility, Q2 revenue is projected to be similar to Q1.
• Ongoing U.S. tariff uncertainty and resulting memory price adjustments could disrupt supply chains and increase costs in coming quarters.
• Long-term AI-driven growth in the memory market positions Netlist to capitalize with its HBM offerings and upcoming MRDIMM DDR5 product line sampling with customers and slated for launch later this year.
• Operating expenses fell by 44% year-over-year, driven by reduced IP legal fees, while ending Q1 with $25.6 million in cash and ample liquidity under a $10 million working capital line and $74 million equity line.
• Multiple litigation wins against Samsung (breach of contract and patent cases) and a $445 million award vs. Micron are moving through appeals, with Netlist expecting favorable final rulings that could reinforce its IP portfolio.

Presentation

[Operator]

Good day, and welcome to the Netlist First Quarter 2025 Earnings Conference Call and Webcast. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mike Smargiassi, investor relations. Please go ahead.

[Mike Smargiassi, Head of Investor Relations at Netlist]

Thank you, Michael, and good day, everyone. Welcome to Netlist First Quarter 2025 Conference Call. Leading today's call will be Chuck Hong, Chief Executive Officer, and Gail Sasaki, Chief Financial Officer. As a reminder, you can access the earnings release and a replay of today's call on the investor section of the Netlist website at netlist.com. Before we start the call, I would note that today's presentation of Netlist results and the answers to questions may include forward-looking statements, which are based on current expectations. The actual results could differ materially from those projected in the forward-looking statements because of the number of risks and uncertainties that are expressed in the call, annual and current SEC filings, and the cautionary statements contained in today's press release. Netlist assumes no obligation to update forward-looking statements. I will now turn the call over to Chuck.

[Chuck Hong, CEO at Netlist]

Thanks, Mike, and hello, everyone. It's been a little over a month since our last call, and as such, our update today will be relatively brief. First quarter financial result was in line with our expectations. While the U.S. tariffs have created some disruptions in the memory market, the majority of Netlist sales are shipped to locations outside of the U.S., thereby minimizing the direct impact of tariffs on our business. That said, in early April, major memory manufacturers withheld pricing information, and leading computer hardware producers paused shipments from Asia into the U.S. as the entire industry grappled with the impact of the tariffs. At the moment, memory and other semiconductor products are exempt from tariffs, but we expect a separate tariff scheme on semiconductors to go into effect in the months ahead.

[Chuck Hong, CEO at Netlist]

We have seen some price increases in April and would expect additional adjustments as tariff impacts the supply chain. There continues to be significant uncertainty as the business environment remains fluid and subject to change. Taking the longer view, however, the overall memory industry is expected to grow significantly over the next few years, mainly driven by AI. As I mentioned on our last call, Netlist is well positioned to capitalize on rapidly increasing demand for high-bandwidth memory, or HBM, and on the industry's transition to DDR5, including MRDIMM, the highest-end server memory that will go to market later this year. We've recently started to sample select customers with high-capacity, high-performance MRDIMM products for the AI memory market and plan to go to market later this year with a Netlist-branded product line.

[Chuck Hong, CEO at Netlist]

Moving on to intellectual property, in the breach of contract case against Samsung, the Federal District Court for the Central District of California entered a final judgment on April 8. The parties have 28 days from that date to file their respective post-trial motions. We estimate that the court will rule on those motions within 90 days. When the judge issues the order on post-trial motions, the case will officially conclude at the district court. Samsung would then have 30 days to file a notice of appeal with the U.S. Court of Appeals for the Ninth Circuit. Samsung has lost this case three times now, and it is unclear on what basis they might appeal. If Samsung does appeal and loses for the fourth time, their only option is to take the case to the Supreme Court.

[Chuck Hong, CEO at Netlist]

We believe the odds of the Supreme Court taking up this kind of case are very remote. In the Eastern District of Texas 1 case against Samsung, where Netlist secured an order finalizing the $303 million damages award in July 2024, the appeals process continues to advance at the Federal Circuit Court of Appeals. The Netlist patents in this case cover both HBM and DDR5 memory that are foundational to AI computing. Samsung filed its opening appellate brief in December, with Netlist filing its response brief in March. Samsung's reply brief will be due in mid-May. A date has not been set for the appeals hearing at this time, but we estimate the case will be heard and decided early next year.

[Chuck Hong, CEO at Netlist]

In the Eastern District of Texas 2 case against Samsung, where Netlist was awarded $118 million in damages in November, and the court issued a final judgment in December, we are in post-trial briefing phase. Once the final order is issued, both parties will have 30 days to file an appeal, which would go to the Federal Circuit Court of Appeals. The $445 million damages award case against Micron in the Eastern District of Texas, which took place in May 2024, is in the post-trial process. We expect this case to follow the same course as the other cases in the Eastern District of Texas. We await the court's final order and commencement of the post-trial briefing phase. With regard to the IPRs, we entered 2025 with eight appeals involving 11 Netlist patents pending before the Federal Court of Appeals.

[Chuck Hong, CEO at Netlist]

In January, Samsung filed its notice of appeal of the PTAB's December 24 decision in the 608 IPR, in which Netlist had prevailed. In March, the Federal Circuit issued a judgment affirming the U.S. PTAB's inter partes review decision, upholding the validity finding of Netlist's 523 patent. As a reminder, this IPR followed a preemptive legal action by Samsung against Netlist. Samsung has 90 days from this decision to file a petition to the Supreme Court. We expect oral arguments for Netlist's 314 and 506 patents to be heard later this year, and the remaining IPR appeals to be heard in 2026. I would note that the appeal of the Samsung EDTX1 case and the three IPR appeals involving the five asserted patents in that case have been designated as companion cases by the Federal Circuit.

[Chuck Hong, CEO at Netlist]

The oral arguments in all four appeals will be heard on the same day before the same panel of Federal Circuit judges. As I mentioned earlier, we estimate that oral arguments will take place in early 2026 in this case, in this consolidated case. Therefore, in the months ahead, we expect to be quite busy with these appeals that are in the pipeline, and we look forward to securing positive results. Now I'll turn the call over to Gail for the financial review.

[Gail Sasaki, CFO at Netlist]

Thanks, Chuck. For the quarter ended March 29th, 2025, revenue was $29 million, which was in line with our expectations and reflected short-term softness in the consumer demand environment. While we do not formally guide, given booking and shipping for the second quarter of 2025 to date, and subject to the visibility we have today while waiting on clarity on the tariffs, we currently expect second quarter revenue to be similar to the first quarter of 2025. Operating expense for the first quarter of 2025 declined 44% compared to the prior year's quarter, driven mainly by reductions in IP legal fees. We currently expect further reductions in legal costs in 2025 as we enter the final phase of litigation for current actions and the completion of the jury retrial in the first quarter.

[Gail Sasaki, CFO at Netlist]

We ended the first quarter with cash and cash equivalents and restricted cash of $25.6 million compared to $34.6 million at the end of 2024, with minimal debt. With a $10 million working capital line of credit and approximately $74 million available on the equity line of credit, we continue to maintain significant financial flexibility and liquidity. As always, we manage the operational cash cycle very carefully, with days in inventory improved by 32 days over last year and the overall cash cycle improved by 54 days over last year's Q1. Operator, we are now ready for questions.

[Operator]

We will now begin the question and answer session. The first question comes from Suji Desilva with ROTH Capital. Please go ahead.

[Suji Desilva, Managing Director and Senior Research Analyst at ROTH Capital]

Hi, Chuck. Hi, Gail. Maybe I'll start with the litigation question, then move to product ones. Maybe on the litigation side, Chuck, just correct me if this is wrong, but it sounds like there'll be 28 days to file a motion that'll be kind of right about now, and then the judge will rule on the case within 90 days. That sounds like July, August. At that point, I guess Samsung has 30 days to appeal. Just want to make sure all that's right. I guess the question would be, is there a reason that Samsung may not be able to appeal, or they would absolutely be able to go through the appeal process?

[Chuck Hong, CEO at Netlist]

Yes, they've appealed before, and they will appeal this time around, Suji. They've lost the case now multiple times, and we don't believe there is a path to a straight-faced, reasonable argument that they can make to try to reverse the outcome.

[Suji Desilva, Managing Director and Senior Research Analyst at ROTH Capital]

Chuck, just to be clear, if that appeal process happens, how long would that take?

[Chuck Hong, CEO at Netlist]

What you just said, the days that you went through, those dates are correct. From that, once the appellate process starts, it could be six months to a year. Realistically, I think both parties believe that the license issue, the breach of contract issue, the two topics that were dispositioned by the district court, that is likely, very high probability, that will not change.

[Suji Desilva, Managing Director and Senior Research Analyst at ROTH Capital]

Got it. Okay. Just to switch over to the Micron case, is there any reason the timeframe would be different from what we've seen with the Samsung case, or could it be compressed for any reason because it's the second one to follow? Any thoughts there would be helpful?

[Chuck Hong, CEO at Netlist]

No. So just to recap, there are two of the cases we just talked about is the basic breach of contract license case, which determined that Samsung does not have a license. And then Samsung had two cases in the Eastern District of Texas, one for $303 million, which covered mostly AI memory, HBM and DDR5. That was the $303 million damages to the date of trial, which was April of 2023. And then the $118 million verdict that was last year, that covered mostly DDR4 and some DDR5 memory. So those are now going through the appellate process. And then we have the $445 million verdict against Micron. That was also last year. And that is already and that will be going through the appellate process.

[Chuck Hong, CEO at Netlist]

Once it's in the appellate pipeline, a lot of the briefings that go in, and it'll take probably about a year to reach oral hearings in front of the Federal Circuit Court of Appeals, at which point their decision, for all practical purposes, is final because none of these cases will go to the Supreme Court. Those appeals, there's a bunch of them. There's altogether maybe a dozen separate patents along with the three cases. Those will all see appeal again in front of the appellate court and that panel starting later this year and on to next year. We finally, after some four or five years, will get to finality on these cases.

[Suji Desilva, Managing Director and Senior Research Analyst at ROTH Capital]

Right. No, I appreciate all that detail, Chuck, and your patience giving it. Thanks. On the product side, you talked about some memory price increases. What kind of magnitude are you seeing? Are these sort of minimal bump-ups, or are people trying to kind of really kind of manage the supply situation aggressively?

[Chuck Hong, CEO at Netlist]

Yes, I think we've seen, and it's been reported that April prices are up. They expect it's low double digits. May, that is expected to go up. There's expected to be a separate tariff scheme to be introduced in May for semiconductors, although it's hard to know whether they'll follow through with that. If there are negotiations, things may change. There is some buying ahead, obviously.

[Suji Desilva, Managing Director and Senior Research Analyst at ROTH Capital]

Sure.

[Chuck Hong, CEO at Netlist]

Yeah, stocking ahead. On the other hand, demand in general is down, especially with consumer PCs and laptops. AI servers, that continues to be relatively strong. The spending on the AI front, the large investments that have been announced since last year by the big hyperscalers, they seem to be continuing to follow through with that. Therefore, the demand of how that impacts the semi world is obviously the GPUs and the HBMs. HBM demand continues to remain robust, and that is expected to year-to-year growth has been significant. For example, Hynix has gone from just a few million dollars' worth of HBM sales a few years ago to now on path to maybe doing $25 billion in HBM sales.

[Chuck Hong, CEO at Netlist]

We expect to take advantage of that growth trend because we have several patents in the HBM area that have been asserted, and we continue to work on additional patents in that area. DDR5 also is AI memory, and that continues to grow as well. We have many patents in that area as well.

[Suji Desilva, Managing Director and Senior Research Analyst at ROTH Capital]

Yeah, thanks. Chuck, it's hard to remember when HBM was just a few million dollars. Lastly, on looking ahead to your products for MRDIMM in the second half, and exciting to see those coming. What do you think is the penetration among AI servers? What percent will be needing that level of performance? What's the content opportunity in those servers? If those questions, you can give any color there at this early juncture.

[Chuck Hong, CEO at Netlist]

Yeah, MRDIMM is, so LRDIMM was the highest-end memory module for the last 15-20 years. LRDIMM went end of life at DDR4. AI memory really starts at DDR5. MRDIMM is the replacement for LRDIMM from a product category standpoint. MRDIMM is the highest capacity, highest performance memory. We expect that to become 10%-20% of the overall server memory market in the next couple of years. MRDIMM will start to be adopted starting at the end of this year. NVIDIA AI servers will likely not use MRDIMM, but AMD and Intel servers, both enterprise servers and AI servers, will adopt MRDIMM.

[Suji Desilva, Managing Director and Senior Research Analyst at ROTH Capital]

Thanks, Chuck. It'll be interesting to watch that. Appreciate all the colors. Thanks.

[Chuck Hong, CEO at Netlist]

Thanks.

[Gail Sasaki, CFO at Netlist]

Thanks, Suji.

[Operator]

This concludes our question and answer session and today's conference call. Thank you for attending today's presentation. You may now disconnect.

Participants

Executives

• Mike Smargiassi, Head of Investor Relations
• Chuck Hong, CEO
• Gail Sasaki, CFO

Analysts

• Suji Desilva, Managing Director and Senior Research Analyst at ROTH Capital