Everspin Technologies, Inc. (NASDAQ:MRAM) Q4 2022 Earnings Call Transcript

Everspin Technologies, Inc. (NASDAQ:MRAM) Q4 2022 Earnings Call Transcript March 1, 2023

Analysts: Richard Shannon – Craig-Hallum Rajvindra Gill – Needham & Company John Fichthorn – Dialectic Capital

Operator: Good afternoon and welcome to the Conference Call to discuss Everspin Technologies Fourth Quarter and Full Year 2022 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 a question-and-answer session. As a reminder, this call is being recorded today, Wednesday, March 1st, 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 and 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 forward-looking statements. We would encourage you to review our SEC filings, including the annual report Form on 10-K, which will be filed with the SEC on March 2nd, 2023 and the other SEC filings may 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 expect as required by law. We undertake no obligation to update any forward-looking statements 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 estimates are based on the information available as of the date hereof and are subject to further review by Everspin and its internal auditors. Our actual results may differ materially from those estimates as a result of completion of our financial closing procedures, final adjustments and other developments arising between now and the time that our financial results with 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 and 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 in 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 Chief Executive Officer, 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 $15.7 million, above the high end of guidance, leading to an all-time record full year revenue of $60 million for 2022. We were GAAP net income positive for the seventh quarter in a row, which continues to be a focus for the company. A few records we reached in Q4 for the full year 2022 include, record annual total revenue, record annual product revenue, record annual net income, record annual cash flow from operations, record annual EBITDA, record annual design wins again in 2022 after setting a record in 2021. Next, a few highlights for Q4 2022 and the full year 2022 include, revenue for Q4 was $15.7 million, up 3% quarter-over-quarter.

Full year revenue was $60 million, up 9% year-over-year. Product sales were $14.6 million, consistent quarter-over-quarter. Product sales for the full year were $55 million, up 25% year-over-year. Cash flow from operations was $5.2 million in Q4, totaling $9.5 million for the full year. GAAP gross margin was 56.6% for the year, and GAAP net income was $6.1 million for the year. Our business outlook. Our product backlog for balance of 2023 as of December 31st, 2022 continues to be high, although we are experiencing some headwinds from the semiconductor downturn. We continue to alleviate some of our foundry supply chain constraints, which is helping address our unfulfilled Toggle demand. Turning to technology. Everspin remains confident in its future opportunities and continues to invest in our leadership in STT-MRAM technology.

We have tuned our STT-MRAM technology to deliver high performance persistent products for multiple non-volatile memory markets, including DRAM, SRAM and NOR Flash. Our STT-MRAM products targeting the replacement of battery-backed DRAM started production in 2017, and are currently shipping in 256 megabit and 1 gigabit densities, with DDR3 and DDR4 derivative interfaces. These products are delivering significant value to SSD, persistent memory cards, fabric accelerator and other applications in the data center market. In 2022, we introduced xSPI family of STT-MRAM products that was developed by tuning our STT-MRAM technology for DRAM to scale our Toggle MRAM offerings to higher densities on advanced CMOS nodes. These products are available on 28-nanometer CMOS node in densities from 8 megabit to 128 megabit, which standardize SPI, Quad SPI and Octal SPI interfaces.

These products are enabling our customers to simplify the system architecture, and easily replace the legacy memory components like SRAM and ferroelectric memories or FRAM. Based on the strong interest and feedback from our customers in this new xSPI family of STT-MRAM devices, we designed and taped out an optimized solution on 28-nanometer CMOS for low-density from 4 meg to 16 megabit in Q4 of 2022. This allows us to better compete with alternate memory solutions in this density range. This family of products are ideal for use in electronic systems like industrial IoT, network, enterprise infrastructure, process automation and control, aeronautics, medical and gaming. Due to the limitations of NOR scaling past 45-nanometer, we believe there is a potential for STT-MRAM for discrete NOR flash replacement similar to the embedded market.

We tuned our STT-MRAM technology and introduced the first STT-MRAM product, addressing this segment of the market in 2022 as well and are currently shipping in 16 megabit to 128 megabit densities. Everspin with this experience in high-density greater than 256 megabit STT-MRAM products is uniquely positioned to design and manufacture monolithic high-density discrete parts for NOR replacement. The first such product is in the design phase, and when available would be ideal for replacing NOR, for example, in FPGA systems to store configuration memory, and simultaneously enabling 100x faster over-the-air updates. Switching to a different technologies that could benefit greatly from STT-MRAM. In Q4 2022, we announced a collaborative engagement to develop strategic radiation-hardened FPGA technology.

As part of the collaboration, Everspin will provide a STT-MRAM solution that acts as a configuration memory in the FPGA, thus eliminating the off or on-chip and the SRAM cells that execute the lookup tables. This solution will promote enhanced security and enable instant on characteristics. Further, the STT-MRAM based configuration memory can be programmed multiple times with fast OTA updates or can be hard-coded depending on the application. Since STT-MRAM can be scaled to advanced nodes and is already available on 22-nanometer and below, monolithic embedded solutions will be possible. We believe this solution from Everspin will play an important role in next-generation FPGAs. I will now turn it over to our CFO, Anuj Aggarwal, who will take you through our fourth quarter financials and first quarter 2023 guidance.

Anuj?

Anuj Aggarwal: Thank you, Sanjeev and good afternoon, everyone. As part of the fourth quarter 2022 financial results, Everspin Technologies is pleased to announce its seventh consecutive quarter of positive meaningful net income. In addition, we generated positive cash flows from operations resulted in a healthy cash balance of $26.8 million. We delivered solid quarterly results above the high end of guidance, with revenue of $15.7 million, compared to $15.2 million last quarter and $18.2 million in the fourth quarter of 2021. We also had positive net income of $0.6 million and positive cash flow from operations of $5.2 million for the fourth quarter of 2022. MRAM product sales in the fourth quarter, which included both Toggle and STT-MRAM revenue was $14.6 million consistent with the prior quarter at an increase from $12.6 million in Q4 2021.

Licensing, royalties, patents, and other revenue in the fourth quarter was $1.1 million, compared $0.7 million in the previous quarter and $5.6 million in Q4 2021. Shipments to suppliers for our largest end customer who we serve with our high-density STT product for data center applications represented 5% of revenue in the quarter versus 19% of revenue in Q3, and 16% in Q4 €˜21. Turning to gross margin, GAAP gross margin for the fourth quarter of 2022 was 51.4% versus 58.8% in the prior quarter, and 62.8% in Q4 €˜21. GAAP operating expenses for the fourth quarter of €˜22 were $7.5 million versus $7.1 million in the prior quarter and $7.7 million in the fourth quarter 2021. The higher operating expenses in the quarter sequentially was primarily driven by increased cost to support the new STT Industrial products that went into low volume production in Q4.

We’re pleased to report fourth quarter positive net income of $0.6 million or $0.03 per basic share based on $20.1 million basic weighted average shares outstanding. This compares to a GAAP net income of $1.9 million or $0.09 cents per basic share in the third quarter of €˜22 and net income of $3.7 million or $0.19 per basic share in the fourth quarter of €˜21. Basic EPS of $0.03 was better than the midpoint of our guidance range, reflecting our strategic operational discipline and ability to drive profitability in the face of tightening supplies and macroeconomic uncertainties. Adjusted EBITDA continues to remain positive. For Q4 €˜22, adjusted EBITDA was $2.1 million, compared to $3.4 million in the prior quarter and $4.8 million in Q4 €˜21.

Adjusted EBITDA for the full year of €˜22 is at a record high of $11.8 million. Cash and cash equivalents increased to $26.8 million at the end of the fourth quarter compared to $23.4 million at the end of the prior quarter and $21.4 million in Q4 €˜21. Cash flow from operations was $5.2 million for the current quarter, increasing the year’s cash flow from operations to $9.5 million. Turning to our first quarter of 2023 guidance, Everspin is confident in its opportunities and ability to navigate the semiconductor and macroeconomic challenges. Demand for our Toggle products remain strong. Everspin expects total revenue in the range of $14.1 million to $14.8 million and Everspin expects GAAP net income per basic share to be breakeven to $0.05, primarily influenced by expenses related to our next-generation 28-nanometer STT-MRAM product development and price increases from our suppliers.

I 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, Everspin reported the best financial year in the company’s history with strong fourth quarter results. We continue to build towards the future of profitable, sustainable growth. Thanks to the hard work and dedication of the Everspin employees. We are confident in our future opportunities and are excited to see the interest from our customers in our STT-MRAM products. 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. And our first question comes from the line of Richard Shannon with Craig-Hallum. Your line is open.

Richard Shannon: Well, hi guys, thanks for taking my questions here. I think the first one I’d like to ask is, in the broader dynamics in the semiconductor space we have seen some inventory builds and a lot of companies have seen some pretty significant burns here of late. You’re not seeing it, at least so far. But I know you’ve got some capacity constraints are still working through. So I guess I’d love to get your best take on the degree to which or I guess maybe thinking about first of all, when you expect these constraints to be overcome? And do you worry and if you talked to your customers about backlogs and bookings that may fall off as they’re become more comfortable with the inventory that they can get from you?

Anuj Aggarwal: Hi, Richard, this is Anuj. Yeah, great question. So let me try to take it in a couple of pieces. So as we look at the backlog, right, it continues to be healthy. So in 2023, we’ve got solid demand, we have demand going out to 2024. So from that perspective, you know things are looking good. Really high visibility into 2024 as well, right. There have been I mean, some cancellations, some push out. So, there has been some macroeconomic effects that we’ve seen. But I think overall, what we’ve been able to do is, because of the high amount of backlog, we’ve been able to pull in demand from future quarters, and really work through that. Now from a customer standpoint, I think you’re asking about that as well. We’ve been working very closely with our customers to understand not only what their current demands are in the current quarter and future quarters, but then also working with them to understand when there are opportunities and capacity frees up, are they interested in getting the product sooner?

And so we’re working very closely with them to pull in demand where it makes sense as capacity frees up.

Richard Shannon: Okay. Okay, fair enough. I’m like come back to this topic here in a second. Maybe asking a more technical question here in the first quarter. I know you don’t you know really delineate with any specifics about how you’re building up to the quarter here, but I would assume that there’s probably a big chunk of licensing revenue falling out quarter-on-quarter with some more modest drop off in Toggle to get to the revenues, kind of midpoint of revenues. Is that a fair way to think about this or is Toggle and product revenues going to be down more than licensing?

Anuj Aggarwal: Yeah, so the way I think about it is the way we built the $14 million to $14.8 million guidance in revenue you know we continue to feel that Toggle is strong, the backlog is very promising and 2023 going up to €˜24. So I think that piece is strong. The part that’s a little bit of a challenge that I think we’ve shared before as we’ve seen STT demand, you know, with our key customer, that’s kind of tapered off a little bit. But it’s strong in that perspective, from a total product revenue standpoint. From licensing, that continues to go up and down, right. So as we see opportunities for patent deals and things like that, none of that’s incorporated into the guidance.