Everspin Technologies, Inc. (NASDAQ:MRAM) Q1 2024 Earnings Call Transcript

Everspin Technologies, Inc. (NASDAQ:MRAM) Q1 2024 Earnings Call Transcript May 1, 2024

Everspin Technologies, Inc. misses on earnings expectations. Reported EPS is $-0.0095 EPS, expectations were $0.03. MRAM isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good day and thank you for standing by. Welcome to the Conference Call to discuss Everspin Technologies First Quarter 2024 Financial Results. At this time, all participants are in a listen-only-mode. At the conclusion of today’s conference call, instructions will be provided for question and answer. As a reminder, this conference is being recorded. I would now like to turn the conference over to Cassidy Fuller [ph] Investor Relations of Everspin. Please begin.

Unidentified Company Representative: Thank you, operator and good afternoon everyone. Everspin released results for the first quarter 2024, ended March 31, 2024, this afternoon after the market closed. I’m Cassidy Fuller, Investor Relations for Everspin, and with me on today’s call are Sanjeev Aggarwal, President and Chief Executive Officer, and Anuj Aggarwal, Chief Financial Officer. Before we begin the call, I would like to remind you that this conference call contains 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.

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-K 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.

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. 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 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 Aggarwal. Sanjeev, please go ahead.

Sanjeev Aggarwal: Thank you Cassidy and thanks everyone for joining us on the call today. During the first quarter, we delivered revenue of $14.4 million at the high end of our guidance range of $13.5 million to $14.5 million. We delivered gross margin of 56.5% in the first quarter compared to 56.8% in Q1 2023. We ended the year with a cash balance of $34.8 million. We are pleased by the progress we have made over the past few years with our Toggle MRAM solution and as we continue to ramp up our lower density products, we will have increased visibility for our STT-MRAM solutions. Looking ahead, we expect to see flattish product revenue in the second quarter compared to Q1 due to continued weakness in Asia Pacific and in industrial, consumer and auto end markets.

However, we expect a ramp in our Toggle and STT-MRAM design wins in the second half of 2024. Our PERSYST industrial STT-MRAM product line has demonstrated consistent strength as it has continued to gain momentum in terms of design wins. We continue to expect to begin translating these design wins into revenue starting in the second half of 2024. Turning now to our radiation hard programs that we outlined last quarter. As we noted on our previous calls, we are engaged in two radiation hard programs using our STT-MRAM technology, the first related to an adhoc 64-megabit STT-MRAM project and the second aimed at building a strategic radiation hardened FPGA. We expect to continue recognizing revenue from the 64-megabit STT-MRAM project over the coming quarters.

We successfully executed the deliverables for the strategic radiation hardened FPGA project in Q1. We expect this project to continue in 2024, with additional funding from the sponsors in the coming months and quarters. During the quarter, we also signed an extension of a Toggle MRAM reliability project for radiation hard applications that we originally executed in the third quarter of 2023. As you may have seen, we recently announced that IBM selected our PERSYST 1-gigabit STT-MRAM solution for use in their new FlashCore Module, the FCM4. This DDR4, like high performance persistent memory, ensures critical data integrity even during power loss. This reinforces deployment of STT-MRAM in data center storage applications. Lastly, we recently submitted our application for the CHIPS and Science Act.

While we do not know the exact timing for a decision, we remain optimistic that we will receive funding which we plan to use for additional 200 millimeter Toggle and STT-MRAM capacity and improved capabilities. There are other grant [ph] opportunities that we are pursuing and hope to be able to share additional details as we move through the year. Turning to our outlook for 2024, as we mentioned last quarter, we expect the year to be weighted more heavily towards the second half as we continue to experience a slower start to the year. This slower start can be attributed to continued economic weakness in Asia Pacific, as well as higher interest rates which have driven customers to focus on lean inventory practices along with shifting project schedules for some government contracts.

Despite these near term challenges, we expect to bring in recognizing revenue from our new STT-MRAM ramp design wins, a stabilization in customer and distributor inventory and a gradual improvement in the Asia Pacific region. Moreover, we are encouraged by our recent traction. We attended Embedded World in Nuremberg a few weeks ago where we introduced the PERSYST brand and had a full schedule of meetings with existing and potential distributors and customers. We came away from the show with significantly more leads than at last year’s event. I will now turn it over to our CFO, Anuj Aggarwal who will take you through our first quarter financials and second quarter 2024 guidance. Anuj?

Anuj Aggarwal: Thank you, Sanjeev and good afternoon everyone. We delivered solid quarterly results near the high end of our guidance range of $13.5 million to $14.5 million with revenue of $14.4 million compared to $14.8 million in the first quarter of 2023. MRAM product sales in the first quarter, which includes both Toggle and STT-MRAM revenue was $10.9 million compared to $13.8 million in Q1 2023. Licensing, royalty, patent and other revenue in the first quarter increased to $3.6 million compared to $1.1 million in Q1 2023. Shipments to suppliers for our high density STT product for data center applications represented 20% of revenue in the first quarter versus 11% of revenue in Q1 2023. Turning to gross margin, our GAAP gross margin was relatively flat to Q1 2023 at 56.5%.

GAAP operating expenses for the first quarter of 2024 were $8.8 million compared to $7.7 million in the first quarter 2023. This drove our first quarter results to a small loss of $0.2 million or a loss of $0.01 per diluted share based on $21.3 million weighted average fully diluted shares outstanding. This compares to net income of $0.8 million or $0.04 per diluted share in the first quarter of 2023. Adjusted EBITDA was $1.9 million compared to $2.3 million in Q1 2023. Our balance sheet remains strong and debt free. We ended the quarter with cash and cash equivalents of $34.8 million, down from $36.9 million at the end of the prior quarter. The decrease in cash quarter-over-quarter is attributed to investments in equipment for new products and operating facilities to ensure readiness for the anticipated second half ramp.

Cash flow used in operations was $1.3 million for the first quarter. Turning to guidance, we mentioned on our last quarter’s call that we anticipate revenue for the first half of 2024 to be lower than our typical seasonality. This has proven true for our first quarter and we expect our second quarter to be down from the first quarter, reflecting flattish Toggle revenue and lower RAD-Hard revenue that Sanjeev mentioned in his remarks. Taking these factors into consideration, we expect Q2 total revenue in the range of $10 million to $11 million and GAAP net loss per diluted share to be between negative $0.14 and negative $0.09. We are optimistic for the second half of 2024 as we begin to recognize revenue from our design wins for our STT-MRAM products.

In summary, we remain confident in our ability to scale the business and convert design wins to revenue. We have already observed increased traction with our design wins and are seeing particular strength from industrial and aerospace end markets. As the industry navigates some near term challenges, we remain focused on growing our Toggle, MRAM and DRAM products and recognizing revenue for our STT-MRAM technology. Operator, you may now open the line for questions.

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Q&A Session

Operator: Thank you. [Operator Instructions] One moment for our first question, please. Our first question will come from the line of Quinn Bolton with Needham. Your line is now open.

Unidentified Analyst: Hey, guys, Nick Doyle on for Quinn. Thanks for taking our questions. A couple housekeeping ones first. For the first quarter, product revenue was down as expected. But did the high density STT, did that increase quarter-over-quarter?

Anuj Aggarwal: Hi, Nick. This is Anuj. Great question. So from a product perspective, yeah, we did see some softness in Toggle as we’ve had some challenges with industrial. But from an STT data center perspective, that product has been pretty healthy. So it was up in Q4 and it was pretty healthy in Q1 as well.

Unidentified Analyst: Great. And then for OpEx, I mean, what drove the sharp increase this quarter? And do you expect to maintain this higher level? I don’t remember if that’s related to NRES [ph] and not having them this quarter. Just how are you thinking about OpEx?

Anuj Aggarwal: Yeah, sure. So from an OpEx standpoint, there’s a couple of things. We had some higher professional services, some stock based compensation and depreciation. I think without giving guidance looking forward, we expect OpEx to be relatively flat to down. So the team’s working on reducing spending and making sure we can have that decline.

Unidentified Analyst: Okay. And then for the 2Q guide, I mean, the guide missed our estimate by about $3 million. Can you just speak to what drove the miss? I mean, reading through the lines, it just seems like Toggles is just a little bit worse. So that products are expected to decline next quarter. And you mentioned RAD-Hard’s going down before it goes up. So in that same vein, margins should probably decline as licensing goes down as well. Just any more color on the guide? Thanks.

Anuj Aggarwal: Yeah, no, I think you’re hitting it as well. I think from a Q2 guidance perspective, if I take a step back, from a product revenue perspective, we expect things to be relatively flat. So as you mentioned, Toggle is flat to slightly down. STT data center, that’s going pretty healthy. And we expect it to be relatively flat. But then from a RAD-Hard perspective, as you might recall from some of the previous calls, we’ve been able to close and complete out several RAD-Hard projects. And we’re currently in the works on a couple of additional new RAD-Hard projects. So the guide you’re seeing today doesn’t include any RAD-Hard revenue since we haven’t signed anything yet. And so really, the decline there is, you’re seeing the RAD-Hard revenue not being incorporated into Q2.

Unidentified Analyst: Okay. And then last question. I’ll jump back in. Just what gives you confidence on the second half ramp? Maybe how much maybe you can give percent or absolute dollar range. How much of the growth in the back half is coming from the RAD-Hard? Thanks.

Anuj Aggarwal: Yes, I want to be careful because we don’t necessarily give guidance for the full year, but I will say we’re seeing the same macroeconomic challenges everyone else is. So talking about things before the working capital, we continue to see there’s some pressure there from Dystee’s [ph] as they’re reducing inventory. From a Japan, China perspective, the yen versus dollar impact, and seeing that products are a little bit more costly, right. Because the yen is depreciated and then we’re seeing ordering kind of going back to the lead times. So from a macro perspective, I think that’s still true. I think what I would say as we deep dive into our business, there’s a couple of things that give us some confidence in the second half.

So if we look at the STT data center, for example, the bookings that we see so far in 2024 look to exceed 2023, and our new STT low density product, that’s also ramping, and we’re continuing to see design wins. In addition to that, from a licensing perspective, there’s several projects that are being worked. They haven’t been signed yet, but there’s multiple things in the hopper. So we expect to sign a few of those in the second half of the year. So that’s what gives us confidence as we look to the full year.

Unidentified Analyst: Thanks.

Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Richard Shannon from Craig-Hallum Capital. Your line is now open.

Richard Shannon: Well, hi, guys. Thanks for taking my questions. Maybe follow up on the topic here of RAD-Hard. Seems like a particular project here seems to be the reason for the sequential decline here, as your products seem to be kind of mostly flat sequentially. Is there like a pause in the project here or is there questions as to whether it will continue? Because I think your partners talked about a program assuming all the options are picked up to something that lasts on the order of four years, and we’ve got at least two years left to go. So just want to get some sense of the visibility in that project and whether this is just a lull between kind of sub programs within the bigger picture?

Sanjeev Aggarwal: Yeah. Hi, Richard, this is Sanjeev. Thanks for your question. Yeah, you’re right. I think we expect the project that we are working on, the strategic radiation hardened FPGA project with our partner, we expect that to get renewed sometime in the next coming months and quarter. The reason for the delay is that there has been some delay from the US government funding agency in continuing the project because of some changes in the schedule on their side. The project is like we said, we met all our deliverables in Q1, so we fully expect to get that project going sometime in Q2 or as soon as the funding comes through. Also, Richard, I would like to point out that we did talk about a new Toggle MRAM reliability project that we assigned in Q2. We just don’t have all the details yet, so we haven’t included that in our guidance for Q2 as well.

Richard Shannon: Well, I guess I’ll follow up on that last part of your comments, Sanjeev, sounds very interesting. How do we think about this in the scale of the other Toggle reliability project? And what’s the source [ph] there is another US or other government agency or what’s the source of that one?

Sanjeev Aggarwal: So that’s basically a follow up from the same agency that we did a project with them in 2023. They had some follow up questions on the reliability models that we shared. So we are actually collecting some more data to bring them up to speed on that one. So in terms of scale, it won’t be as big as it was in ’23, but we don’t have the financial figures yet to disclose.