Everspin Technologies, Inc. (NASDAQ:MRAM) Q3 2023 Earnings Call Transcript

Everspin Technologies, Inc. (NASDAQ:MRAM) Q3 2023 Earnings Call Transcript November 1, 2023

Everspin Technologies, Inc. beats earnings expectations. Reported EPS is $0.11, expectations were $0.04.

Operator: Good afternoon, and welcome to the conference call to discuss Everspin Technologies Third 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, November 1, 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.

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 10-Q, which will be filed with the SEC on November 2, 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 are based on the information available as of the date hereof and are subject to further review by Everspin and external auditors. Our actual results may differ materially from these estimates and as a result of the completion of our financial closing procedures, final adjustments and other developments arising between now and the time that our 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 would like to turn the call over to Everspin’s President and CEO, Sanjeev Aggarwal. Sanjeev, please go ahead.

Sanjeev Aggarwal: Thank you, Operator, and thanks everyone for joining us on the call today. Everspin delivered quarterly revenue of $16.5 million above the high end of guidance and an 8% increase year-over-year. We were GAAP net income positive for the 10th quarter in a row a strong focus for the company. A few highlights for quarter three 2023. A Cash flow from operations was $3.6 million putting us at $11.1 million year-to-date. We continue to operate debt-free, while increasing profitability. Q3 net income was $2.4 million. Everspin ended Q3 with a cash balance of $34.9 million. We announced the availability of the X5 family of STT-MRAM products from eight megabits to 64 megabit density with the extended temperature range of minus 40 centigrade to 105 centigrade for production orders.

We are sampling the 4-megabit density part in the smaller DFN package and the extended temperature range with production planned for the first quarter of 2024. In Q3 we entered into an agreement to develop reliability models for strategic radiation hard and Toggle MRAM. In October, we entered into a new contractual agreement to license our STT-MRAM technology to build a strategic radiation hardened FPGA. Our business outlook. We continue to have a good visibility into our product backlog for the remainder of 2023 and into early 2024 as of September 30, 2023. We have alleviated our foundry supply chain constraints, which is helping us address our unfulfilled toggle demand. Products. We expanded our flagship industrial high-density STT-MRAM product family, the EMxxLX to include a 5-millimeter x 6-millimeter DFN package smaller by 37% compared to the current offering.

In addition to the area savings we are delivering an extended temperature of minus 40 C to 105 C. This family of xSPI STT-MRAM devices, delivers the highest combination of performance, endurance and retention and are now available in densities from four to 64 meg. It is the only commercial available persistent memory with full read and write bandwidth of 400 megabytes per second via eight input output signals with a clock frequency of 200 megahertz. It is the highest performing persistent memory available today ideal for electronic systems, where data persistence and integrity, low power, low latency and security are paramount. Industrial IoT network enterprise infrastructure, process automation and control, aeronautics, avionics medical, gaming and FPGA configuration are examples where this family will simplify the system architecture and offer an alternative solution to legacy memories such as ferroelectric memories.

FRAM, battery back random access memories BRAM, NOR Flash and nonvolatile SRAM. A few comments about our Radiation Hard programs. Since its inception, Everspin has invested in maintaining its leadership in MRAM technology, as evidenced through its IP portfolio and successful licensing of its technologies. We are excited to report that we entered into two new Radiation Hard program agreements, one on Toggle MRAM to develop reliability models for the strategic radiation hardened Toggle MRAM products. The second agreement is to license our STT-MRAM technology to build a strategic radiation hardened FPGA. These agreements are in addition to the existing Radiation Hard programs on STT-MRAM technologies that we have discussed in previous earnings calls.

A high-tech production line of robotic arms assembling a semiconductor chip.

One, a high-density memory array, and two, a distributed configuration memory for instance on FPGAs with multiple time programmability. The R&D and design teams delivered on the milestone successfully to further the development of these STT-MRAM-based solutions for these projects. We believe our distributed MRAM we are coining as D-MRAM approach is a revolutionary approach and will give us an edge on energy efficiency and scaling, as we deploy the solution and FPGA and AI inference engines. I will now turn it over to our CFO, Anuj Aggarwal, who will take you through our third quarter financials and fourth quarter 2023 guidance. Anuj?

Anuj Aggarwal: Thank you Sanjeev and good afternoon everyone. As part of our third quarter 2023 financial results we are pleased to announce our tenth consecutive quarter of positive net income. In addition we generated positive cash flow from operations of $3.6 million during the quarter. We delivered solid quarterly results above the high end of guidance with revenue of $16.5 million compared to $15.7 million last quarter and $15.2 million in the third quarter of 2012. WE also had positive net income of $2.4 million and positive cash flow from operations of $3.6 million for the third quarter of 2023. The MRAM product sales in the third quarter which includes both Toggle and STT-MRAM revenue was $13.5 million compared to $13.4 million in the prior quarter and $14.6 million in Q3 ’22.

Licensing royalties patents and other revenue in the third quarter increased to $2.9 million compared to $2.3 million last quarter and $0.7 million in Q3 2022. Shipments to suppliers for our high-density STT product for the data center applications represented 11% of revenue in the third quarter versus 7% of revenue in Q2 and 19% in Q3 last year. Turning to gross margin. GAAP gross margin for the third quarter of 2023 was 60.2% versus 58.4% in the prior quarter and 58.8% in Q3 2022. The increase in gross margin is primarily attributable to the increase in licensing revenue. GAAP operating expenses for the third quarter of 2023 were $7.9 million versus $7.6 million in the prior quarter, and $7.1 million in the third quarter 2022. The increase in operating expenses in the quarter compared to Q3 2022 and was primarily driven by an increase in professional service costs.

We are pleased to report third quarter 2023 positive net income of $2.4 million or $0.11 per share based on 21.8 million weighted average fully diluted shares outstanding. This compares to a GAAP net income of $3.9 million or $0.18 per diluted share in the prior quarter and net income of $1.9 million or $0.09 per diluted share in the third quarter of 2022 Diluted EPS of $0.11 was better and the high point of our guidance range reflecting our strategic operational discipline and ability to drive profitability despite macroeconomic uncertainties. Adjusted EBITDA continues to remain positive. For Q3 2023 adjusted EBITDA was $4 million compared to $5.4 million in the prior quarter and $3.4 million in Q3 of last year. We ended the quarter with cash and cash equivalents of $34.9 million compared to $30.8 million at the end of the prior quarter and $23.4 million as of Q3 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 as the company continues to operate debt-free. Cash flow from operations was healthy at $3.6 million for the current quarter. Turning to our fourth quarter 2023 guidance. Everspin is cautiously optimistic. Demand for our Toggle products remain strong and we continue to see increased demand of our xSPI family of STT products. We expect total revenue in the range of $15.4 million to $16.4 million and GAAP net income per diluted share to be between $0.01 and $0.06. I will now turn it back over to Sanjeev for some brief additional commentary before we open it up for questions.

Sanjeev Aggarwal: Thanks, Anuj. In summary, we reported another profitable quarter now tenth in a row which remains a strong focus for the company. We are excited that our Toggle MRAM and STT-MRAM technologies are being selected for Radiation Hard programs taking advantage of our leading-edge capabilities. We believe the extended temperature range capability of minus 40 C to 105 C of our STT-MRAM xSPI family positions us well to address the fast-growing industrial IoT and embedded systems markets. We have good visibility into our Toggle MRAM backlog through 2023 and early 2024 giving us confidence in our business. Thank you for joining us today. Operator, you may now open the line for questions.

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Q&A Session

Operator: Thank you so much. [Operator Instructions] Our first question that comes from Shadi Mitwalli with Craig-Hallum. Please proceed.

Shadi Mitwalli: Hey, guys. Congrats on another solid quarter. I just had a question on revenues being on the upper end of guidance. It looks to be mainly coming from licensing. So with that is most of the increase in licensing revenues coming solely from the RAD-Hard programs, or are we seeing any meaningful royalties from past licenses contributing to the increase in licensing revenues?

Anuj Aggarwal: Hi, Shadi. This is Anuj. Thanks for the question. Yeah. For Q3 the good news came from the licensing and royalty side. We had some strong revenue from the QuickLogic deal. And then we had a third RAD-hard deal that Sanjeev mentioned related to Toggle reliability. And so we were able to get some work done there and account for that revenue as well. I will say also though product sales were strong and so total sales continued to be strong in Q3.

Shadi Mitwalli : Awesome, awesome. And then I just got actually a question on product sales. With products being down Q-over-Q, has there been any unusual activity with the backlog such as pushouts or even cancellations regarding backlog?

Anuj Aggarwal: Yeah. The interesting thing with backlog Shadi so there’s definitely some macroeconomic uncertainty and industry trends that are happening, right? So the supply constraints are loosening. The lead times are reducing like we had mentioned last couple of quarters. And so we are seeing customers booking within the lead time, but they’re kind of waiting to book outside the lead time, right? And so we are seeing some impact in APAC for example within the Industrial Automation section.

Shadi Mitwalli: So with the Industrial Automation segment be one of the guys more weaker end markets you’re experiencing?

Anuj Aggarwal: No. Actually, for Q3, we had good results in the Industrial segment. I was just making a comment that the Industrial segment has some uncertainty in China and so there are some challenges there. But it’s been stronger in last few quarters.

Shadi Mitwalli: Okay. Yes, that makes sense. And then just one more question on end markets. Were there any particular end markets you guys are seeing a little more strength or weakness in?

Anuj Aggarwal: Not particularly right now. I think just overall there’s some macroeconomic uncertainty right as things are happening. So, you’re just seeing customers waiting to place orders, right? And just wanting to see what’s happening in China and what’s happening in the economy in general. But overall the segments look good except for what I mentioned some risk in Industrial.

Shadi Mitwalli: Awesome. Yes it makes sense. That’s all for me and congrats on another solid quarter.

Anuj Aggarwal: Thanks Shadi.

Operator: Thank you. And it comes from the line of Quinn Bolton with Needham. Please proceed.

Nick Doyle: Hey guys, this is Nick Doyle on for Quinn. I wanted to focus on RAD-Hard it’s doing really well. claiming his new wins new licensing. Can you just talk a little bit about the applications and applications that are actually using that? And then the new licensing deal is that a one-time item? Or are we stepping up the kind of baseline of licensing revenue? And then if we could also — if you could also touch on the products are we still on track to enter production by the end of next year and customers shipping in 2025? Thanks.

Sanjeev Aggarwal: Hey, thanks Nick. This is Sanjeev. So, I guess I’ll let I’ll try to remember all your questions, but if I forget something please remind me. As far as the goodness of the Radiation Hard deals you’re right I mean we were really excited that we were picked by the government contractors to actually have one project on Toggle MRAM and another one on STT-MRAM as well. . The licensing deal that you talked about or that we talked about for STT-MRAM that is actually targeted towards an instant on FPGA similar to the one that we announced I believe two or three quarters ago. So, this is a new project with a different vendor although the subcontractor is still through QuickLogic, but they have a different CMOS provider.