The full year 2023 increase in operating expense compared to 2022 was driven mainly by legal expenses due to a more active legal trial calendar in 2023 and also in preparation for 2024. This was partially offset by cost savings as we right-sized sales and marketing, given the market downturn in late 2022 through the first half of ’23. With multiple upcoming trials currently scheduled, we expect investment in these active campaigns to remain elevated during the first half of 2024 and then moderate as we move through the rest of the year. We also expect to expand the sales and marketing team to meet the growth in demand. We ended 2023 with cash and cash equivalents and restricted cash of close to $53 million compared to approximately $51 million at the end of the prior quarter and approximately $44 million at the end of 2022.
In addition, with our $10 million working capital line of credit with Silicon Valley Bank and approximately $34 million available on the equity line of credit through Lincoln Park Capital, we continue to maintain significant financial flexibility and liquidity going forward. As always, we manage the operational cash cycle very carefully, which improved by 25 days in Q4 ’23 compared to last year’s Q4. Operator, we are now ready for questions.
Operator: We have a question from Suji Desilva with ROTH Capital.
Suji Desilva: Congrats on the recovery here. Maybe you can talk about the revenue framework more broadly as we look at ’24. Your recovery here implies kind of a $120 million revenue run rate. In the past, you’ve done sort of $140 million, $160 million, so I’m just trying to understand how to think about the recovery shape here relative to historical revenue levels.
Gail Sasaki: Yes. I mean, as we’ve noted and the analysts have said that ’24 will be a revenue positive year and we expect to be in line with that. But I think due to the lack of our own visibility, we’ll take it quarter-by-quarter. We’ll continue to soft guide in that way, but we are positive.
Suji Desilva: Okay. I appreciate that, Gail. I understand it’s a recovering environment. And then more specifically, perhaps for Chuck, ’24, these AI platforms as they come online, what are the upside opportunities for Netlist in terms of products, the timing of that, just to understand how that can flow to your opportunity here?
Chuck Hong: Yes, Suji. So I think the AI platforms are, as a percentage of overall servers that are installed, is increasing. It’s probably in the teens to 20% penetration rate. Most of those systems require higher-speed DDR5. Virtually all require DDR5. And that — we have DDR5 products such as the DDR5 VLP, MRDIMMs and other higher capacity, at the very high end of the product line. We offer those that are not offered by the major DRAM manufacturers. So I think we’ll see good opportunities in that high end. In general, I think SSD demand will continue to grow and our high end SSD product lines, 32 terabytes and above, I think that they will benefit — that demand increase will benefit that part of our business as well.
Suji Desilva: And then my last question, Chuck and Gail, is thanks for all the litigation detail in the prepared remarks. Which of the top two or three sort of next dates or sort of events or milestones that you think are most important for Netlist should we watch more out of all the things that are happening?
Chuck Hong: Yes. We have — in the coming three months, three to four months, we’ve got a number of trials. Obviously, we’ve prepared for the last couple of years invested in these cases and the trial is a culmination of that investment. The first trial that was set out for January, unfortunately, that was postponed by Judge Gilstrap due to resource issues. And that — so that is pending the outcome of HBM’s IPR results — IPR results of the HBM — final IPR, final written decision. So we hope to have that trial upon those results coming out. We’ve got a trial set for, as I said, March 26 against Samsung. That is a major trial on breach of contract. And then there are two trials in a combined case against Samsung and Micron that are currently set for April 15.
And those are, again, for past damages for RDIMMs and LRDIMMs that are of significant dollar exposure to both of those companies. Those will likely be separated out into two separate trials sometime second quarter or mid-2024. So we’re very busy preparing for these trials, and we’re working hard to win those trials and prove infringement and validity of these patents.
Operator: Thank you. And this concludes today’s conference call. We thank you all for attending today’s presentation. You may now disconnect your lines, and have a wonderful day.
