Q1 2020 Earnings Call

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Hello.

Well it doesn't ever spent technologies first quarter 20 type your financial results conference call.

At this time all participants are in the listen only mode and the conclusion at the base conference call instructions will be given for the question and answer session.

As a reminder, this conference it's being recorded today first date me seven.

And that wasn't I'd like to answer the call over to Leon Seevers of Shelton Gribble.

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The young pleased to go ahead.

Good afternoon, and welcome to ever spend technologies first quarter 2020 earnings conference call Liane Seevers President of Shelton grip ever spend investor relations from.

Joining me today are Kevin calmly ever since president the C.E.O. <unk> controller in inner M.C. up though.

What would 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 spend feature business financial performance and goals customer in industry adoption of M. Ram technology successfully bringing to market in manufacturing products and ever spend to design pipeline in executing on it.

Business plan.

Forward looking statements are based on estimates judgments current trends and market conditions and involve risks uncertainties that may cause actual results of different materially from does contained in the forward looking statements. We would encourage you to review R.S.C.C. filings, including the 2019 form 10, K. filed with the S.C.C. on March 13th 2020.

In other L.D.C. finally made from time to time in which we may discussed with the factors associated with investing in ever since all forward looking statements are made at the data this call it except as required by law, we did not intend to update this information.

Call will be available for audio replay for at least 90 days in the Investor Relations section I've ever spends website that W.W.W. dot ever spend dot com.

Now I'd like to turn to call over to ever since President C.O., Kevin Connolly, Kevin. Please go ahead.

Thank you again.

These unprecedented times of global Pandemics, Let me say that I hope you're all healthy unsafe.

And that we appreciate you taking the time to participate in this earnings cool.

The first quarter of Twentytwenty. Your police report that revenue was well above guide.

This is our third consecutive quarter of revenue growth as data center demand and abroad diversity of our customer base continue to be positive factors for our business.

Product sales were robust despite the marginal Q1 impacted cobin 19 that we discussed on our last earnings call.

Gross margin supported by our cost control measures helped deliver earnings at the high end of our guide.

These results are especially notable when considering our usual first quarter seasonality along with these compounding effects of the current market environment.

Almost two months ago, we responding to the coping 19 pandemic by proactively putting measures in place to protect our workforce into guard or business from destruction.

We moved the majority of Nonproduction personnel to remote working arrangements and restructure team assignments to allow our employees to continue to operate safely and productive way.

Overall, we are optimistic on the direction of the business, while we remain alert to the changing dynamics of the current environment as you will see in our two two guidance demand as a whole still looks to be growing in a healthy fashion.

Data center demand projected to be strong and memory demand in our core industrial segment relatively solid.

While we see minor fluctuations in demand timing in some regional softness this is being offset by other areas that increased demand.

As a reminder, we do not have exposure to the mobile market and minimal exposure to the auto market, which have experienced the greatest impact from the pandemic.

We continue to work closely with our key customers and distribution partners well monitoring other key indicators to maintain vigilance on potential applications of the pandemic on our future results.

One practical implications of our current work from home posture and travel restriction.

Is that our progress on the production ramp up our one gigabit S.T.T.M. ran product is slower than we had hoped.

Teamwork with our partners unwrapping production and maturing yields has been extremely collaborative you have to current circumstances have prevented us from ramping fast enough to satisfy all customer demand and achieve our costs targets.

Working with our partners, we are actively managing the situation to get us back on track in the coming.

Given the increasing contribution of this product to our teacher revenue stream. We believe this may temporarily challenge our ability to achieve our gross margin targets in the near term.

Nevertheless, I one gigabit products should continue to be our fastest growing revenue driver.

I want to reiterate customer interest in the one gigabit product continues to expand as evidenced by increased sampling activity as well as the new data center customer design when that is expected to transition to mass production later this year.

More broadly total design wins for M. Ram products in Q1 reached a new high.

Despite many customer engineering chains, having limited access to those laboratories.

Toggle design wins increased over queue for.

More than doubled compared to to one of 2918.

Indicating success in our efforts to drive toggle Amiram gross.

Looking forward market expectations are positive on enterprise demand for memory in both server and storage, which had seen increases do too many companies moving to remote working condition, that's driving the need for increased data center capacity and bandwidth.

Our business remains on solid footing and we continue to focus on further strengthening its fundamental.

But greatly improved <unk> then structure supported by reduce costs in our established product line, we continue to align our efforts to achieve cash flow break even before year end.

Underlying that focus is driving increased design wins for new and existing toggle products.

Hurting engagements with customers and I go system partners into design wins for S.C.T.M. Ram products and continued expansion of our Enron product portfolio.

This is this includes continuing to build on the early success of our newly introduced toggle capacities to megabit, eight megabit and 32 megabit.

As well as preparing our customers for future industrial S.T.P. products.

Also we continue to see increasing interest for use of M. Ram and environment that require various levels of radiation immunity such a space applications.

A market we have already have a proven track record it.

We believe that despite the current environment, we are increasingly well positioned to dry long-term broke.

I'd like to make one final comment on or search for a permanent see oh.

We have talked to a good number of qualified candidates and have been pleased with the level of interest.

Hoped to provide further positive updates in the near future.

With that I will handed over to our inner in T.F., though not scenario.

I'll take you through our first quarter financials and second quarter Guy.

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Afternoon, everyone.

As part of my financial review today.

I'll focus more discussion on non got financial results and refer you to today's press release for detailed description of our gap results as long as a reconciliation of doubt to non-GAAP results.

The <unk> adjustments exclude stock big compensation.

Structuring and other charges.

Starting with a review of the first quarter 2020 income statement.

Revenue in the quarter exceeded the high end up regarding $10.1 million.

Appeared to 9.7 million in the fourth quarter of 20 like team and 10 million in the first order of 2019.

Looking specifically at N. Brown odd excel in the first quarter.

Which includes toggle and S.P.T.M. Ram revenue was 9.6 million.

Pair to 9.2 million in the previous quarter and my million in the first quarter of 2019.

The increase in products do reflect continued growth of our pago products combined with strong contribution from F.T.P.M. or a box.

Licensing royalty and other revenue in the first quarter of 2020 contributed approximately 0.5 million.

Compared to 0.5 million in the previous quarter.

At approximately 1 million in the first quarter of 2019.

Gross profit for the first quarter of 2020.

5.4 million.

452.9 per cent of rubber.

It's a 5.2 million or 53.6 per cent of revenue in the park quarter.

And 4.8 million for 47.7% revenue in the first quarter of 29.

The 520 basis point, you're over your increase in gross margin.

Flexible significant improvements in manufacturing you o'bara mature products.

As long as a one time benefit from the <unk> previously expense fully qualified one gig F.P.G.M.M. product.

Non gap operating expenses.

Order of 26.2 million compared to 6.3 million of the previous quarter and 8.3 million the first quarter of 2019.

The breakdown of operating expenses for the first quarter, what's that follows.

Research and development expenses were 2.9 million compared to 3.1 million last quarter and 3.9 million in the same quarter a year ago.

Oh, Gee, inexpensive, where 3.3 million compared to 3.2 million in the park quarter and 4.4 million in the first quarter 2019.

S. G.N.A. baseline expenses would have declined from the previous quarter without expenses related to your rent on it.

Interest expense for the first quarter 2020 was 172000 compared to 179000 in the previous quarter and 211000 during the fourth quarter of 2019.

Other income in the first quarter was 22000 compared to 127000 last quarter and 127000 during the same quarter a year ago.

The <unk> net loss for the first quarter 20 21 million.

Or a five cent lost her share based on 18.1 million weighted average shares outstanding.

This compares with lots of 1.2 million or seven spent last per share in the park quarter.

And I met lots of 3.6 million for a 21 cent loss per share through the same quarter a year ago.

The significant improvement in your over your bottom line results underscores the benefits from our expense reduction initiatives combined with ongoing improvements and mature product cost reduction.

I, just a bit up for the first quarter of 2020, well the loss of 300000 compared to a loss of 600000 in the previous quarter and a lot of 2.9 million in the first quarter of 2019.

No turning to the balance sheet.

Cats and catch equivalent for 14 million at the end of the first quarter.

14.5 million at the end of the park quarter.

Cash used for operations plus capital expenditures.

Point 6 million in the first quarter.

<unk> pretty million last quarter, M. 3.4 million, the first quarter of last year.

Cast use this quarter included installment payments based on timing of deliverables and some one time payments, which we do not expect to occur.

As mentioned on our conference call last quarter ended March we suspended trading on our that's a market for H.T.M. facility.

Far too, which we generated approximately 2.1 million from issuance of new soft into one.

We currently have no plans to restart trading on our age yet.

During the quarter, we had an average balance of 2 million dollar utilization of our 5 million dollar line of credit.

We continue to believe we have sufficient cash to support our operations and <unk> objectives.

Total assets at the end of the first quarter, where 34.7 million.

Compared to 35.4 million in the previous quarter.

Total liabilities, we're 14.7 million into first quarter as compared to 16.9 million in the fourth quarter of 2019.

Stockholders' equity, what's 20 million compared to 18.5 million the fourth quarter 2019.

I will now turned to our second quarter guidance.

We expect second quarter revenue increase to a range between 11.5 and $12.5 million.

We expect a death of Los per share Oh between 12 cents and five cents.

And on a non databases lots of between 16 and approximately break even per share.

The ranges for both death and non got yeah are based on an estimated average weighted shirts out of 8.6.

18.6 million shares outstanding for the second quarter of 2020.

That's kinda mentioned, while demand as a whole lot relatively healthy.

We remain vigilant on potential implications of the pandemic.

Including the impact of work from home and travel restrictions on her one gig F.C.T.M. Ram production round.

These dynamics, we're factored into our guidance ranges.

<unk> reflect revenue growth and break even result at the high end of our non yet you p.

Operator, you May now open the line for questions.

Thank you pretend that it's time for their participants. So that's a good question you May press star one on the telephone keypad again, that's Taiwan on the telephone keypad tend to draw. Your question you May press the pound key.

Oh, So just a moment Brooklyn College, you an investor.

We have our first question from Ivy Shusterman.

Your line is open.

This is ours Schuster men on behalf of Roger Gill. Thank you for taking my questions. So I wonder first start off by asking about the impact of cool bid on data center. The man, particularly as there are ways to increase demand for M. Ram technology within data sounds replication any.

<unk> I would be appreciated thank you.

[noise] they sort of question sorry data center demand as we have have put in our commentary over the past couple quarters has been has been on the increase as as the normal cyclicality head led to increase the server builds as as we entered.

Two one that continued to strengthen and has continued to strengthen even further as we've.

As we completed the quarter. So they just kind of demand we do see some some positive factors as as a function of demand on data centers driven by it's a cool we believe glad to cope in 19 pandemic.

Gotcha. Thanks, Yeah, and then with regards to a your new toggle product, particularly eight make it a bit and 30 to make a bed, okay talked about attraction you've been saying those.

[noise], we cannot we talked on our our last call that we'd actually already.

Already qualified the achy, but I'm sorry, the 32 megabit part.

And.

I've also gotten qualification about eight megabit parts. So those those two parts already have production orders being placed.

That'll start helping us this year.

Gosh, it up when I, just switching a bit towards global foundries. So with regards to your 12 <unk> process.

Now you guys have been doing work go with boundaries. So when can you give some color on that and when do you expect a substantial sales with regards to deal with embedded amram products.

[noise], so it'll be the announcement that we made with a technology.

Partnership that we have had and long standing with global boundaries that has so far produced three different technology nodes of M. Ram, but our original 40, the 28 man and meter which is our one gigabyte product as well as global foundries 22 <unk> huh.

F.T.X.

<unk>. So so we should look at the 12 man and meter as the next chapter of that in the next logical step of that technology development Road map.

We we open the door now for that collaboration to to go too deep level and at this point we're not.

Putting specifics out there with regard to technology availability or product at this time.

Gosh, you're saying sorry, just one more question with regards to your restructuring efforts. So can you talk about the progress regarding died and how can we expect outback to try and for the remainder of the year.

[noise] well, we talked about on the restructuring that we completed on January 31st was that our target was to produce operating expenses in twentytwenty by $5 million over what we spent in 2019.

Who now have the first glimpse of of how that's played out in Q1 of this year and you can see that we we significantly reduced our expenses.

The tip to last year quarter of a quarter.

And given that the <unk>.

The completion of our restructuring happened at the end of January and this quarter, we didn't enjoy a full corpora.

Of the total benefits from that plus we have ongoing restructuring expenses that will continue for some months. So it it will it'll gradually be played out over the coming quarters.

And in in should give us a pretty significantly reduced one right.

Gosh.

Thank you for your questions or any.

Once again, so that's a good question. Please <unk> on your telephone keypad.

We have no question that that'd be fun, you may continue with the presentation.

Thank you.

In closing.

I'd like to recognize the and the efforts of the entire ever spend team as well as our partners who have done so much to keep our people say and allow our business continue to strengthen despite the current challenges.

The growth implied by the guidance, we provide it didn't the current environment distinguishes us for many of our industry peers and we all work to continue to successfully deliver on our objectives.

Before we go I want to remind investors that we plan to participate virtually at the Oppenheimer emerging growth conference on May 12th.

We also are scheduling virtual investor meetings with me them under 13 and 14.

Although by the Craig how long virtual conference on May 27.

For those interested in scheduling a meeting please contact the Shelton group or the hosting from.

Look forward to reporting our progress with our new products and business results on our call next quarter.

Thank you all for joining us today.

Operator, you may now disconnect the call.

Thank you for Sampras. This conclusion is conference call. Thank you for participating you may not disconnect.

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