Q3 2020 Everspin Technologies Inc Earnings Call

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That's all today from management or Kevin Connelly ever spans President and C O and Dan you Bierbaum Chelf financial officer 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 comments made during today's call may contain forward looking statements regarding future.

Okay 20. This conference call is being available for audio replay for at least 90 days, India Investor relations sections of ever spend website at W. W. Dot ever spend dot com and with that I would like to turn the call over to ever spend President and C. E O. Kevin Connelly Mr. Commonly please go ahead.

Operator.

Good afternoon, everyone and thanks for joining a call today.

Asian showed noticeably lower demand in the quarter, primarily due to customer uncertainty associated with the pandemic, resulting in inventory digestion that distributors.

This and recently they recently detailed how their chip Leverages M Ram to achieve a new level of system energy efficiency.

Another customer announce their newest AI enhanced application processor for the Hearables market using yam Ram or again low energy consumption is a key application requirement.

Well, it's highlighting other components of our expenses, which we think are important for investors to understand our ongoing business.

Revenue in the third quarter of 2020 was $10.1 million compared to $11.8 million in the second quarter of 2020 and $9.2 million in the third quarter of 2019.

Our cost of goods sold include the non cash $1.7 million inventory reserve and the zero point $4 million or accelerated depreciation as well as zero point $1 million related to a prior period cost adjustment.

Yeah, that's perfect.

Thanks, Dan and.

Thanks for taking my question.

From the standpoint of the <unk>.

Industrial recession industrial semiconductor recessed back in 2019 and dealing with the Covid pandemic. This year if he if he discount some of the strategic actions that we took from 2018 in terms of profitable customer selection and if you look at what we've been able to do.

Next year.

Well that will help grow the that the share of market in those products and.

Additionally, on the licensing front as I mentioned, we'll now start to see production revenue from from our global foundries engagement.

And.

In a licensing is of course something that we also pursue has a uh huh.

As a part of our revenue mix on an ongoing basis. So if we think about next year and some of these recoveries.

Going back and turn to give a little tailwind to us we actually believe that we are very well positioned now both with our our legacy products that we worked very hard to.

Solidify maintaining their on pristine level of quality for the customers and the liability and.

As we brought out the new products based upon our more advanced spin torque technology offering.

New density new value propositions, the new economics to our customer base. So we believe that that will help us get.

Beyond kind of where where we've seen things and I do want to point out that that $40 million ish level.

Level in the past included much higher levels of things that were.

I hope that helps but in terms of total magnitude. We do believe we're probably today around $750 million.

Total Tam.

Okay, and John and John I'll, just add I mean, thats extract go Thats a market comment we are still relatively small.

Compared to our overall market. So we obviously think that our growth potential is much higher than the growth the growth of our markets.

Right. It just seems like you have products that can reach more of the market now and I'm just trying to figure out like is the opportunity. It seems like it's bigger and you're just ramping into is what I'm trying to get a feeling for just another way of trying to figure out what your growth trajectory should look like.

And maybe the last question then I'll shut up is it seems like.

At the very least march should be or even this quarter.

It's really a quarter that you're only going to grow off of I don't know whether there is a seasonality in your business.

Based on kind of the new products introductions and licensing ramping up but is it a fair assumption that there should be some form of linear growth from here or is there some kind of lumpiness to this that we should be anticipating as we model it going forward.

I think the two.

Two parts of our business any first of all my general commentary was on the bulk of our products, which serve the industrial.

Customer base.

It should be recognized that the one gigabit product that we sell into the data center space is far lumpier than the rest of our products. So so on the on the high density one gigabit for the for the data center market, we would expect that to be lumpy as new customer opportunities kind of production, but on.

The.

On the toggle side is as the market recovers the teaser.

Great. Thank you very much.

Thanks, Jonathan.

And next question on line of Denise pathogen with Needham and company.

Hi, guys. Thanks for taking my question I'd be asking these on behalf of our Rajiv Gill today.

So my first question is.

So can help a little bit more about kind of like the ramp of the FCC Abram and maybe what you're seeing from the data data center side of the business.

I don't think there was challenging more recently has up things kind of fell off from the initial copa demand, but out what's happening in that space right now.

[laughter].

Hello.

Yes, sorry, I think kevin's muted there.

Kevin I think you're muted.

<unk> I'm not muted, though allied [laughter], no you're not you're not muted.

Oh, I'm, sorry, I can't believe it.

Kevin line has disconnected sir.

Right got wondering when you go ahead and repeat the question again give me a little bit of time to think while we get the CEO reconnected.

Kevin could chime in as well if you back.

I want to go.

Go ahead and answer some questions.

So that.

I was wondering are.

Are there any up with obviously, where you believe that.

Back on now I apologize.

Well the funds go ahead.

Go ahead and buy package and dismiss question go ahead, yeah perfect. Okay. My second question was kind of a bigger picture question and no.

No I was wondering if you guys could speak about you know maybe up do you believe that there are some applications, where kind of your products up either at the ft T M Ram or the toggle product, where they're underutilized like where you like new spaces, where you think this ramp should be used to but it's not being used can you speak about that a little bit.

Yes, absolutely I mean, so yes, there are very many places where this gets used one that we've been working for a long time.

And you know growth has been slow beyond the first customer is in storage.

We still believe that the best way to produce very economical high performance storage applications is using our.

Non volatile buffer technology.

To use the most cost effective NAND flash memory Indy storage applications without sacrificing the latency or the performance on the reliability.

Those devices and especially in enterprise storage.

The same value proposition of high performance low latency non.

Non volatile memory also.

He has a lot of value anywhere where there is mission critical information.

Used in systems.

Nice can be both.

Data storage related such as fabric accelerators.

For software defined storage applications, it can be persistent memory cards and.

Uh huh.

Of.

Hi, speed logging type applications as well, so I think theres theres definitely a broad set of applications today.

That could benefit from the technology.

And we're working with several companies on.

On seeing those come to market.

But it is.

It is it is something that architects take a lot of hand holding to get through to understand how that can not only bring the performance benefits to it but do it cost economically.

Great and then just to clarify I'm you'd mentioned something about a buffer technology could you or could you what was the best technologies like you mentioned.

Excuse me, it's a non volatile right buffer so our our one gigabit M. Ram is the function that it performs in many of these storage applications isn't on vault right buffer.

Perfect. Thank you.

And that will be it for me thanks for taking my questions.

Thanks, Dan Thanks, Dennis.

Again, if you like to ask a question. Please press Star then the number one on your telephone keypad again this starting in number one to ask a question you're not next line comes from the line of Richard Shannon with click click Hallum.

Great guys. Thanks for taking my questions as well, maybe a couple of simple ones here, you're looking for some nice growth here at the midpoint your fourth quarter guidance, Kevin I think you referred to some improvement in industrial wanted to get a sense of how much of that is due to industrial.

And there is just how much we could see from other applications, specifically that might be related to SPG.

[noise] I'm always say in general I think where we're starting to see as we entered the quarter an uptick in in demand and.

And as an improvement in the.

In the non data center level.

Levels of inventory, so I think based upon that I think we're seeing.

General improvement in the broader industrial channel.

Okay that is helpful and it sounds like based on your other comments, Kevin that you are seeing or at least hopeful of a general sustained improvement obviously absence any stranger happenings from cobot is that a fair statement as you look into next year.

I'm not going to genfit by coming up with strange events because of dealing with the recessions and Pandemics and economic shutdowns I think we'll well whether it's time I think the good news here.

Richard is that.

Despite the pressures that we'd been under this year, we've come to each one of them pretty strongly we stayed on track with our with our operational objectives in our business initiatives. We continue to support customers, who remain dedicated to the programs that we've been working on.

So.

Given given where things are at we're confident in our in our current positioning and our ability to continue to execute.

As Dan said, we're signaling part of that confidence by by not renewing the ATM and its expiration.

And we.

When in production.

Oh, yes.

You know normally I mean normally.

Normally its fairly short our experience.

Is that you know.

A design win when we when we qualified design win what we qualify that adds is that we've received a letter from our customers, saying that they've completed qualification of those products and they're going to production. So generally that that's an indication that we're nearing production order.

Sometimes it's indicated with a production order right. So it can be a couple of weeks.

And it can be up to a few months, depending on product introduction and timings et cetera.

These days.

It's it's actually quite a bit different.

For a number of reasons in the factory automation space as you know the over the last two years.

There's been delays and investments there so even though the companies are our customers are developing their new platforms be reading those for introduction men.

Many of them are delaying those interim.

Production.

To to the the end market demand.

As we said we believe some of that is just now starting to turn around.

And that's kind of the dynamic that we went into this year, although it was exacerbated with the.

With the.

The conditions of cobot, and what that was done to their markets as well.

But.

I will say on the on the positive side its been surprising to US you know we mentioned in the Q1 call Q1 call that we expected the design win activity to slow down and.

And while we do have several that's it information about engineering teams working remotely and being challenged in there.

Work the numbers continue to go up so so as Dan said I think thats, a very positive forward looking indicator.

For.

For the potential once these projects tend to start to see the ability to come to market.

Okay. That's helpful perspective. Thanks.

A couple of couple last questions for me are you done inside a 10% customer I can't remember the exact numbers, but I think there was a 30% range or so I'm assuming those customers are also taking not just taking not just the.

CTG, but also taking toggle is that fair.

Our largest customer is there was 38% of revenue in the quarter, we did not break out they were taking both toggle anda.

Okay.

Last question for me you mentioned in your prepared remarks that some announced a customers using embedded memory and mature at your regular foundry.

Partner are you getting any visibility into royalties, there and what visibility like how far out do if you're if you're not getting how far out do you expect to get that kind of visibility.

So we had as we talked about on previous calls you know, while we do expect.

One thing to hit production. This year, we don't expect it to be material.

Because we mentioned from the public announcements since both the companies can I did refer to.

In their in their statements those both look like at least one of them is kind.

Can a mid next year in summer and and Sony.

Be sometime during the year, I don't know specifically which quarter.

Okay. That's that's all the questions for me. Thank you guys.

All right. Thank you Richard Thanks, Richard.

Again, if you watch with a question. Please press Star then the number one on your telephone keypad again, that's starting a number one to ask a question.

And at this time no other questions I would like to turn the call over to Mr., Brad Feldmann Brahm from.

Closing remarks.

Thanks for ship before we leave you, we'd like to inform investors that ever spend will be participating in the Craig Hallum Virtual Alpha select Investor Conference on November 17, and in the benchmark capital Discovery one on one conference on November 18, we will also be presenting and meeting with investors at the Needham virtual growth conference the week of January.

11th 2021, please contact me or the managing from to request a meeting with that we conclude today's call. Thank you all for joining us and we look forward to reporting our progress and results for the year in next quarter's call. Operator, you may now disconnect the call.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

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