Q4 2019 Earnings Call
Ladies and gentlemen, thank you for standing by welcome to the average spend technologies fourth quarter and fiscal 2018 financial results Conference call. At this time all participants are in listen only mode. Later, we'll conduct a class hitting a free session and instructions will follow at the time, if anyone should require any assistance during the conference.
Please press star one zero I touched on telephone as a reminder, this conference call is being recorded I wouldn't like to turn the conference over to your house definitely a fever Shelton group Investor Relations. Please go ahead.
Good afternoon, and welcome to ever been technologies fourth quarter in 2019 earnings Conference call I'm Leanne Sievers President of Shelton group ever spends investor relations firm, joining me today or Kevin Connolly ever since President and CEO, Matt Donofrio, corporate controller and interim CFO 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 ever since future business financial performance in gold customer in this industry adoption of M. technology successfully bringing to market in manufacturing products in ever since design pipeline and executing on its business plan. These forward looking stay.
Shipments are based on estimates judgments current trends in market conditions 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 efficacy filings, including the 2018 form 10-K filed with the FCC on March 15, 2019, and other FCC filings made.
From time to time, and which we may discuss risk factors associated with investing in ever spent oh.
All forward looking statements are made as of the data this call and except as required by law, we do not intend to update this information.
This conference call will be available for audio replay for at least 90 days in the Investor Relations section of ever since website at www dot ever spin Dot com and now I'd like to turn the call over to ever since President and CEO, Kevin Connolly Kevin. Please go ahead.
Thank you in and good afternoon to those joining us on today's call.
I'm very pleased to announce the progress achieved in our fourth quarter results with revenue at the high end of guidance supported by significantly improved margins.
Revenue increased for the second consecutive quarter with positive contributions from both toggle an S. T T M ramp, which is especially noteworthy in light of the difficulty faced by the broader industrial semiconductor market last year.
As we projected last quarter component sold into the datacenter segment, where again a major positive factor in our growth as a function of the rising number of new server built coupled with continued strong demand on the storage side through the end of the year.
We saw further increase in rate controllers card builds in enterprise server applications, which benefits our taco products as well as ongoing progress in storage arrays for S. T. T M ran products.
Demand from this important market segment has continued to be strong as we entered twentytwenty.
We also began to see a broader recovery in the market as reflected by channel and customer inventories returning to historical norms through the end of the year, which remain at healthy levels.
Demand across the broad markets. We serve was solid at the beginning of the new year and grew at a good pace prior to Chinese new year.
With the extended Chinese factory shutdowns that resulted from the Corona virus outbreak like many companies, we experienced longer than usual pause in new orders and a slowdown in demand growth in the weeks. Since then however.
As indicated by our Q1 guidance, we're still seeing healthy demand signals and despite the first quarter typically being us a seasonally lower quarter for ever spent.
[laughter] to protect ourselves from coven 19 related supply chain disruptions.
We had put in place contingency plans for those parts of our supply chain that are in China, but to date have not had a need to end coaxum.
And we are working closely with our manufacturing partners in other parts of the world to manage any possible issues, while we focus on responding to our rising demand.
As a precaution, we've stopped international travel reduced domestic travel and moved to virtual meetings, where practical but continue to operate at otherwise normal levels.
Well continue to monitor the situation and be prepared for possible changes that could impact our business in future quarters.
Overall in 2019 shipments of both to 56, megabit and one gigabit SPP MRM products have ramped throughout the year contributing record revenue for the past two quarters and growing to well over 10% of our total revenue.
Demand for one gigabit product remains in line with our expectations.
As announced in December we have achieved customer qualification of the one gigabit component in a major datacenter customer and now have also achieve qualification in the second data center customer Ambrosi production orders.
Additionally, we continue to work with ecosystem partners, including the enterprise storage controller companies announced it Fms as well as others.
To cultivate a broader set of customers in the data Center segment.
We also announced last week, they weren't development of an industrial S.P.T. product line.
We've been actively engage with customers that are excited about this new market expansion opportunity.
Our latest product line will deliver unprecedented performance and reliability in a nonvolatile memory to address a we see as a growing opportunity for universal memories in industrial I O T and point applications.
Using our established 28 nanometer SGT technology allows us to deliver these capabilities at very competitive economics in these cost sensitive applications.
And our toggle portfolio, the eight megabit and 32 megabit toggle MRM products announced last quarter at both completed qualification with select and customers and I've already produced initial production orders in Q1.
The speed of these qualifications reflects how all these products address the needs of our customers that we identified for these sweet spot capacities.
Design wins for the broader toggle them Ram product line doubled in the second half of 2019 over the first half signaling continued healthy forward looking growth.
In new business for this work horse product portfolio.
On the licensing front, we're proud to see the public production readiness announcement from global foundries. This quarter on its 22 nanometer fdx embedded amram or am Ram.
This is an important milestone along with the associated customer engagements.
And we expect to see our first royalty revenue from this partnership by year end.
We're also pleased to announce that we have signed another extension of our joint development agreement with Globalfoundries and now expands our partnership to further cooperation in the development of M. Ram technology for G.S. 12 nanometer technology node.
We are proud to be part of what has been the most productive partnership in the Mtwom industry and are excited about what this next step will mean for further extending m. Rams reach.
As announced in January we completed a restructuring of the company that significantly reduces our operating expenses.
While enabling us to continue investing in our current growth objectives, as well as our future product and technology leadership.
The net result is a stronger more integrated customer engagement team to drive the topline growth combined with more cost effective operational footprint.
That in turn better supports our needs to expand our product portfolio and continue to lead the market with our disruptive Amiram technology.
While these were difficult decisions to implement.
Our team has adapted well to our reorganize structure and is driving hard on our key priorities.
We look ahead to the coming here our primary focus is on driving growth across the business, which includes increasing design wins for both our existing toggle products as well as our new expanded capacity products into additional applications.
Converting an increasing number of engagements with ecosystem partners and customers into design wins for S. TTM ran products within the datacenter segment, and then ultimately reaching cash flow breakeven by driving revenue growth on an improved cost structure.
Before turning the call over to Matt to Norio, our interim CFO I wanted to provide a quick update on our search for a permanent CFO first I want to say that I'm very pleased to have worked directly with Matt who previously served as our corporate controller in that role Matt has done a solid job over the last few quarters building our operations finance strength.
I've been pleased with his ability to step up to this leadership role and the positive support he has received from our finance team.
My confidence in mass ability to fulfill these responsibilities in the interim provides the opportunity to focus on finding the right candidate to be or next CFO.
We will provide updates as appropriate during the process.
Now I'll turn the call over to Matt Wholl take you through our fourth quarter and full year 2019 financials as well as our first quarter 2020 guidance.
Thank you, Kevin and good afternoon, everyone.
Starting with a review of the fourth quarter 2019 income statement.
Revenue in the quarter was at the high end of our guidance at $9.7 million compared to 9.2 million in the third quarter of 2019, and 12.3 million in the fourth quarter of 2018.
For the full year 2019 revenue was 37.5 million compared to 49.4 million in 2018.
Looking specifically at Amiram product sales in the fourth quarter, which includes toggle and STT M. WRAM revenue was 9.2 million compared to 8.4 million in the previous quarter and 10.2 million in the fourth quarter of 2018.
The sequential increase in M. ramp product revenue was driven by record SPG and WRAM revenue combined with another quarter of growth for our toggle products.
For the full year Amram product sales were at 34.6 million.
Compared to 39.5 million in 2018.
This decline reflects the ending of our engagement with an automotive program, which reduced our year over year revenue, but with minimal impact to our gross profit.
Licensing royalties and other revenue in the fourth quarter of 2019 contributed approximately $454000.
Compared to 808000 in the previous quarter and approximately 2 million in the fourth quarter of 2018.
For the full year licensing royalties and other revenue was 2.9 million that's compared to 9.9 million in 2018, which included a sizable multi year licensing agreement in the first quarter of 2018, adding to the natural variability of this revenue stream.
Gross profit for the fourth quarter of 2019 was 5.2 million or 53.6% of revenue compared to 4.4 million or 47.4% of revenue in the prior quarter and 5.4 million or 44.2% of revenue in the fourth quarter of 2018.
The sequential and year over year increases in gross margin, primarily reflect our continued improvement in manufacturing yield throughout the year.
For the full year gross profit was 18.3 million or 48.9% of revenue.
Compared to 25.3 million or 51.3% of revenue in 2018, which reflects the benefit of the 9.9 million in licensing royalty and other revenue.
GAAP operating expenses for the fourth quarter of 2019 were 8.2 million, which included a onetime restructuring charge of 0.8 million.
Compared to 7.9 million in the previous quarter and 8.8 million in the fourth quarter of 2018.
The breakdown of operating expenses for the fourth quarter was as follows.
Research and development expenses were 3.3 million compared to 3.4 million last quarter and 3.9 million in the same quarter a year ago.
And SDMA expenses were 4.1 million compared to 4.5 million in the prior quarter and 4.9 million in the fourth quarter of 2018.
For the full year 2019 operating expenses were 32.7 million, which included the restructuring charge of 0.8 million in the fourth quarter compared to 42.7 million in 2018.
As evidence of our successful cost reduction efforts full year 2019 operating expenses decreased by approximately $10 million compared to 2018.
With an additional 5 million reduction targeted this year from our recent restructuring.
These collective actions are expected to accelerate our path toward achieving cash flow breakeven by year end.
Interest expense for the fourth quarter 2019 was $179000 compared to 170000 in their previous quarter and 228000 during the fourth quarter of 2018.
Other income in the fourth quarter was 127000 compared to 89000 last quarter and 142000 during the same quarter a year ago.
The GAAP net loss for the fourth quarter, 2019 was 3.1 million or a 17 cents loss per share.
Which included the 0.8 million restructuring charge as well the stock based compensation of approximately 1.1 million and was based on 17.7 million weighted average shares outstanding.
This compares with a net loss of 3.7 million or 21 cents loss per share in the prior quarter and a GAAP net loss of 3.5 million or a 20% loss per share during the same quarter a year ago.
For the full year 2019.
GAAP net loss was 14.7 million or 85 cents per share, which included the fourth quarter restructuring charge of 0.8 million as well as stock based compensation of approximately 3.6 million.
And was based on 17.3 million weighted average shares outstanding.
For the full year 2018, GAAP net loss was 17.8 million or one dollar eight cents per share.
Adjusted EBITDA for the fourth quarter 2019 was a loss of 0.6 million compared to a loss of 2.2 million of the previous quarter and loss of 2.2 million in the fourth quarter of 2018.
For the full year 2019, adjusted EBITDA was a loss of 7.9 million compared to a loss of 12 million for 2018.
The improvement both sequentially and year over year are attributed to our operating expense reduction efforts and improved manufacturing yields.
Now turning to the balance sheet cash and cash equivalents were $14.5 million at the end of the fourth quarter compared to 14.8 million at the end of third quarter of 2019.
Cash used for operations plus capital expenditures was 3.0 million in the fourth quarter compared to 770000 last quarter and 8.2 million in the fourth quarter of last year.
For the full year 2019 cash used for operations plus capital expenditures amounted to $9 million compared to 16.6 million in 2018.
During the fourth quarter, we raised $2.6 million from the issuance of new stock through our aftermarket or ATM facility that we put in place last August.
We have used a portion of the cash proceeds to strengthen our balance sheet and reduce the company debt balance, including a $2 million pay down of our liner line of credit after quarter end.
The $500 line of credit is still available to us.
With these actions and our recent cost reduction efforts, we believe we have sufficient cash to support operations and our growth objectives.
We have confidence in our financial plan and have suspended the utilization of our ATM facility.
Total assets at the end of the fourth quarter were 35.4 million compared to 35.1 million in the previous quarter.
Total liabilities were 16.9 million in the fourth quarter as compared to 17.1 million into third quarter of 2019.
Stockholders' equity was 18.5 million compared to $18.1 million in the third quarter 2019.
Now turning to our guidance.
Beginning with the first quarter 2020, and going forward, we will begin providing guidance for both GAAP and non-GAAP earnings per share.
Our non-GAAP results will exclude stock based compensation.
With that said.
We expect first quarter revenue to range between $9.5 million and $9.9 million.
We expect GAAP loss per share of between 15 cents, an 11 cents on a non-GAAP basis, a loss of between nine cents and five cents per share.
The ranges for both GAAP and non-GAAP EPS are based on an estimated average share count of 18.1 million shares outstanding for the first quarter of 2020.
This compares to GAAP loss per share of 25 cents in the first quarter of 2019 on $10 million of revenue highlighting the significant progress we have made over the past year on our cost reduction initiatives to drive increased operating leverage and improve the company's bottom line results.
Operator, you May now open the line for questions.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then the number one can on your thoughts on telephone. If your question has been answered or you wish to remove yourself from the Q. Please press the pound.
Your first question comes from the line of Freddie Joe from would have been couple Sir Your line is open given ask your question.
Yes, thanks, and congrats on the other positive momentum.
Kevin a question on the new the extension of the agreement with global foundries to 12 nanometer that's a very good indication.
You talked to though about that you expect to see some royalty revenue.
From the 22 nanometer fdx solution for embedded Amram wanted to try to understand how to think about that from a revenue impact at a high level, how should we think about that in terms of.
The potential royalty.
Good opportunity there.
As we've talked in the past global.
Has talked in their public forums about as sizeable.
Pipeline of revenue that will be based on the 22 nanometer Fdx M. Ram.
However, I'm not in a position too.
Provide any insights on the shape or timing of that ramp I think the significant thing.
That we look at is the start of that which will then of course be growing in significance overtime.
And the kind of traction that you're seeing.
For the the one gig product.
Your second datacenter customer can you talk about how you're seeing kind of the ramp there and also.
The attach rates as you frame remedies, you kind of moved to non storage datacenter customers, what's the value proposition for the non stores datacenter customers.
So most of our engagements this week as we've talked about are in that datacenter. The the parts were specifically designed for datacenter applications.
And more specifically around the non volatile right buffer utilized in many storage in datacenter applications. So.
Well, we have the initial orders and we'll start the initial ramp. So we do expect that that will probably be more significant.
Toward the end of the year.
And just last question on the gross margin the margins will improve based on the met a factory yields.
Been lumpy in the past, obviously, but but how do we because of different royalty licensing.
Puts and takes.
Is there.
We think about the gross margin profile going forward is it going to be smoother or.
Or should we expect kind of more volatility in the margin.
Well our efforts have been.
Threefold I guess would I would comment on is the first is we focused a lot on stabilizing some of the the legacy manufacturing that we do have our own toggle products. It's been a strong focus for us for for a couple of years.
And our intention is to keep those more stable going forward and improve on them.
The margins of the STT as we've talked about fit along with our toggle.
Products into our long term financial model that we published where we're we're looking for greater than 50% gross margins from the this set of products that we sell to the market.
Then with regard to how we see licensing that is something which is opportunistic and the timing of which is not something that we can.
Provide a lot of insight on.
Although we do look for new sources of license revenue that overtime, we believe will become.
Increasingly more important.
Thank you.
Buddy.
Your next question comes from the lineup Richard Shannon from Craig Hallum. Your line is open Sir you and ask the question.
Hi, Kevin Thanks for taking my questions as well you guys. Thank you couple of tactical financial related questions. Your your product gross margin in the fourth quarter very nice up quite a bit here I think you called out yield is that's the only affect your was any effect from from mix in the fourth quarter.
There are always product mix effects in our in our margins from quarter to quarter.
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I would say in this case and the overwhelming reason for the improvements that we saw was what Matt talked about which was the improvement in yields.
Okay, any reason to think that they're not sustainable or even in.
It'd be improved from here.
We have constant ongoing efforts to improve the margin of the products and as we have stated in our efforts are designed to keep our margins firmly in line with our long term financial model.
Okay fair enough.
Yes, good question or two on the financial guidance you gave for the quarter, obviously very nice to see.
Revenues up sequentially in your seasonally down quarter.
Just wanted to.
So if there's any color you can give about the.
The licensing contribution just to make sure that it's not so.
I guess more than we've seen in the past couple of quarters will be known should be higher or is that a sequential growth driven by products.
Hi, Richard we.
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Give guidance on specific contributors there in terms of of what those are.
And.
As I talked about in terms of what our view of things is this quarter.
That.
The reason why we're confident in giving the guidance that we did is is really the product demand signals that we see.
Okay, that's what I figured I just want to make sure. So as I'm trying to go from your topline to your bottom line trying to think of.
The in a range of gross margins in Opex and sounds like you're right.
Confident in gross margins here, so that would suggest that opex should be down.
Sequentially, a fair amount you talked about a $5 million opex savings this year and I'm not sure. If we should be kind of expect that kind of quarterly hurt that the yearly run rate in the first quarter not quite as much or where you can help us think about sitting those variables together.
What I would guide you to is is look at.
As we said in the in the press release that we did in January that our target was to complete our restructuring by the end of the of January and that did happen on schedule.
As you might imagine not all of the cost savings initiatives.
Happening on that date and will be timed throughout the year. So the number the way to think about it is a yearly.
Number four this year not as a run rate number.
Okay Fair.
Fair enough I will speak about that one of them.
You can follow up offline my last question those on the.
The one gig success, you're having with data centers.
From a prior question talk little bit about the application maybe you can get a sense of how diversely. These are deployed in I guess your first customer and.
And whether the second customer you may see a similar even greater attach rates to their server infrastructure over time.
At the current time, I'm really not at Liberty to talk about the specific application there.
On that as we've talked in the past, we do look at different applications in the data center, where we're seeing traction right. We've we've talked about historically for a longtime the in the storage side and talked about all flash arrays and ssds.
But we've also talked about things like fabric accelerators for EMEA me over fabrics, we've talked about persistent memory cards and those types of applications.
Obviously some of these are very mainstream and some are merging in emerging applications, it's a bit hard to make commentary on the speed at which the emerging applications will take take hold but they are.
These are these are.
The types of applications that have very.
Broad interest.
And deliver a lot of value to the datacenters to solve some of their Turkey key objectives.
Okay I appreciate the detail and gets all the questions for me Thanks, Kevin.
Okay. Thank you Richard.
Thank you I'm showing no further questions at this time I would now like to turn the conference back to Mr., Kevin Cohen for closing remarks.
Thank you all for the questions and for participating in today's call.
In closing I'd like to express my gratitude for the persistence of the entire Everspin team and those partners, who continue to support us and our growth objectives.
We ended the quarter with strong performance on the top and bottom line and we significantly strengthened our balance sheet throughout the year in the face of tough market conditions.
With our Q1 outlook, we remain encouraged by the near term opportunity for continued demand and with our restructured operation we have significantly improved our financial position with the goal to achieve cash flow breakeven by year end.
We will continue to playing carefully for contingencies as we monitor the current market uncertainties and strive to make decisions to serve our near and long term objectives for growth and profitability.
Longer term, we remain optimistic about the growth potential enabled by our increasing customer traction expanded product portfolio and the 12 nanometer engagement with GSK.
For interested investors, we want to inform you that is permitted by the covert 19 situation. We plan to participate at the Oppenheimer emerging growth conference in New York on May 12.
We also plan to a range additional investor meetings, while on the east close on the East coast with Needham.
So for those interested in scheduling and meeting please contact the Shelton group or the hosting firm.
We look forward to reporting our progress with our new products and business results on our next call next quarter. Operator, you may now disconnect the call.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for your participation have a wonderful.
Okay.
Yes.
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HM.
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