Q2 2021 Everspin Technologies Inc Earnings Call

August 12, 2021

[music].

Good afternoon, and welcome to the conference call to discuss ever spin technologies second quarter 2021 financial 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 the question and answer session.

As a reminder, this conference call is being recorded today Thursday August 12.2021.

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 spin <unk> future business financial performance and goals customer and industry adoption of AMRAAM technology sector successfully.

Moving to mark to market and manufacturing products in ever spin design pipeline and executing on its business plan.

This 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 the forward looking statements.

We would encourage you to review our S E SEC filings, including our second quarter report on Form 10-Q filed with the SEC On August of 'twenty, 'twenty, one and other S. E. SEC filings made from time to time in which we may discuss risk factors associated with investing in ever spin.

All forward looking statements are made as of the date of this call and except as required by law, we do not intend to update this information.

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 ever spin and its external auditors.

Our actual results may differ materially from these estimates as a result of the completion of our financial closing procedures financial adjustments and other developments are rising between now and the time that our financial results for these periods are finalized.

The company's press release and statements made during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms.

Included in the company's press release are definitions and reconciliations of GAAP net loss to adjusted EBITDA, which provide additional detail.

This conference call will be available for audio replay for at least five days in the Investor Relations section of ever spins website at www dot ever spin dotcom.

And now I'd like to turn the call over to ever spin executive Chairman and interim CEO Varian Biller back therein. Please go ahead.

Thank you operator, and thanks to everyone for joining us on the call. Today Q2 results came in at the higher end of guidance and as mentioned in our press release, we were GAAP net income positive for the first time in company history.

Non-GAAP net income positive is a key milestone for the company and its simple proof points that being laser focused on improving yields lowering opex spending and growing our top line will drive profitability, albeit at lower revenue levels. If your gross margins higher.

Revenue for Q2, 'twenty, one was up 15% over Q1.21 for Q2 'twenty one.

S T T revenue bounce back increasing 56% and continues to gain traction as the market recovers.

Toggle with flat to slightly down due to supply constraints. In fact, our current backlog suggests that toggle Q3 revenue would be even higher if we weren't supply constrained once again attesting to what seems to be a solid economic recovery in the industrial and factory automation areas, along with continuing to shift to the new design wins, we've been discussing for the past.

Couple of years.

We continue to see strength in Q3, we're starting backlog over Q2 for industrial customers and we are encouraged to see that all four regions continued to grow.

<unk> revenue was back on track as expected in Q2 and continues to trend in line with expectations for Q3, and Q4 design wins continued to grow in Q2.2021 as they did in Q1.

We're on track to match the design one total of 2021 versus 2020 as you May recall 2020 was a record for design wins, we continue to focus our efforts now on turning those opportunities into real revenue with the only limiter being the in depth industry supply.

On the Q2 operations front, we continued to focus on yield improvement and lowering our costs everywhere. We expect to see gross margins begin to flatten out through the end of the year as most of our gains are being offset by supplier price hikes.

The biggest risk to our plan. This year continues to be about getting the capacity at the committed pricing and the tight capacity situation worldwide as.

As we discussed last quarter, we won a Rad hard design collected $3 million in cash and finally this quarter, we're able to recognize some of the revenue Q2 revenue did include about $1.2 million in licensing revenue and we expect to recognize the rest of the ring remaining portion of the $3 million based on development milestones.

For the next couple of quarters.

I will now turn the call over to interim CEO, CFO and new Jaguar Wall, who will take you through our Q2 quarterly financials and Q3 quarter 2021 guidance.

Thank you Darren and good afternoon, everyone. We are pleased to report GAAP record financial results for the June quarter, reflecting our strong operating results highlights include positive net income for the first time revenue at the top end of guidance and improved gross margin revenue for the second quarter of 2021 came in.

At 11, eight 5 million compared to $10.3 million last quarter and $11.8 million in the second quarter of 2020.

MRM product sales in the first quarter, which included both toggle and S. T M Ram.

Revenue was 10 million versus $8.9 million in the prior quarter and $10.9 million in Q2, 2020 Q2 reflected the first time the company recognized $1.2 million revenue from the Rad hard deal, resulting in licensing royalties and other revenue in the quarter of $1.7 million compared to $1.4 million in the previous.

<unk> and <unk> 9 million in the prior year period.

The increase in revenue is due to strong SPT sales and Rad hard revenue recognition offsetting the yearly true up and royalty that was recognized in Q1 shipments to suppliers for our largest end customer who we serve with our high density SPT product for data center applications represented 34, 7% of revenue in the quarter.

Versus 25, 6% of revenue in Q1, and 34, 4% in the year ago quarter, turning to gross margin GAAP gross margin for the second quarter of 2021 was 67% versus 58, 2% in the prior quarter and 43, 9% in Q2.2020.

The higher gross margin is driven by Rad hard revenue recognition and improved yields GAAP.

GAAP operating expenses for the second quarter of 2021 were $6.7 million versus $6.3 million in the prior quarter and $6.3 million in the same quarter one year ago. The increase was specifically for 28 nanometer product development.

GAAP operating expenses in the second quarter of 2021 included <unk> 7 million of stock based compensation compared to <unk> $74 million last quarter and $92 million in the year ago quarter, We expect R&D to grow minimally the remainder of 2021 as we prepare for the launch of our 28 nanometer SD.

Mmm product targeted at industrial and other based applications for the first time in company history. We are reporting a positive net income of point to $5.6 million or <unk> <unk> per share based on $19.3 million basic weighted average shares outstanding. This compares to a GAAP net loss of 460.

<unk> thousand or <unk> zero, two cents per share in the first quarter of 2021, and a GAAP net loss of $1, two 9 million or negative <unk> <unk> per share in the first quarter of 2020 earnings per share of <unk> was better than our guidance range, reflecting our tight operational discipline and strong gross margin.

Turning to the balance sheet cash and cash equivalents decreased to $14.2 million at the end of the second quarter compared to $15.5 million at the end of the prior quarter and $12.9 million in Q2, 'twenty cash flow from operations was negative at <unk> $5.6 million for the quarter, but remained positive.

At $1.1 million for the first half of the year turning to our third quarter guidance. We expect revenue in the range of $11.7 million to $12.7 million, which at the midpoint of $12.2 million represents a 3% increase over the 11.9 million from the second quarter of this year, we expect.

GAAP loss per share of between negative <unk> <unk> and negative <unk>.

Primarily driven by expenses related to next generation in 28 nanometer SPT and Ram product and price increases from our suppliers I'll now turn it back over to Darren for some brief additional commentary before we open it up for questions.

Thanks <unk> in summary, we continue to build towards a profitable future Q2's, GAAP net GAAP positive net income is a testament to the hard work and extra effort he ever spend team put in to control our cost improve our yields and ship everything that we could in a very constrained semiconductor supply network. We are both excited by what we accomplished.

Q2, along with our potential opportunities to grow throughout the year. Operator, you may now open the line for questions.

Thank you Darrin and as a reminder to ask a question. Please press star and then the number one on your telephone keypad again, just fresh star and then the number one on your telephone keypad and do we draw. Your question just press the pound key.

We will pause for a moment to compile the Q&A Rusty.

Okay.

Our first question comes from the line of Richard Shannon from Craig Hallum. Please go ahead.

Yeah.

Okay.

Hi, guys. Thanks for taking my questions and congratulations on the first quarter of GAAP net income.

I'm sure this is Don.

Lead time for you guys and celebrate so congrats on that.

<unk>.

Maybe just a couple of quick tactical questions here by the way can you hear me I'm getting a little feedback on the line is okay for you Debbie Yes, we can hear you perfectly now we can hear you okay alright.

Alright good.

Just talk a little bit on the guidance here for the quarter.

Can I get a lot of feedback here I'm going to go to give me a second I go off my.

My headphones here working very well.

Let's try it this way so.

So on the guidance for the quarter I Couldnt do the quick math in my head regarding and guessing how much of the Rad hard license and other licensing.

It's going to build into the third quarter revenue number so maybe I'll ask the question another way which is.

Are we going to see product growth here happening in the third quarter sequentially.

Yes. The answer is product growth actually grew its grown every quarter right. It was up Q1 to Q2 was about up about 13% and then in Q3, it is going to be up again.

Yes, okay.

Okay that is helpful. And then anyway that you can help us think about the gross margins here for the guidance as well, obviously moving parts within within licensing can move that here. So maybe you can help us out think about that directionally that would be a big help.

Yes sure. This is <unk>. So gross margin, we don't typically guide on gross margin.

But I will say for modeling purposes, I think you could stick to about mid to low <unk> for gross margin.

As you would expect in Q1, we had a royalty true up in Q2, we're seeing higher yields in some of the Rad hard deal driving higher margins, but there is some risk to supply chain costs increasing.

So that way.

We think that the mid to low <unk> is fair.

Okay fair enough.

Darren a quick question on supply constraints does this impact you equally across toggle and S E T or is it more on the toggle side.

It's probably more on the toggle side as you saw in Q2 actually our toggle was flat to down in Q2, where you <unk> was up quite a bit. So we were able to at least two we built enough inventory as we move through on the STD products that we didn't have as big a constraint the big issues on toggle weren't necessarily front and they were.

Backend so it looks like packaging and test and some of the strength constraints on that.

One other thing I want to mention that we are trying to be somewhat conservative Richard because.

The company has been known for missing guidance a lot. So as we kind of work through these things and we're going to see some cost increases because we've already been.

Pushed on that front, but we're trying to model and maybe maybe were a little too conservative on that but I'd, rather be I'd, rather be upfront about what the constraints are and the price increases then have it be a surprise.

Okay, that's fair enough I appreciate that detail.

Let's see a couple of questions on the on your kind of outlook here post near and long term.

I guess I'd love to hear a little bit, but engagements with your high capacity of CGM Rams.

Where where that how that is progressing new applications customer.

Customers, who recently ramped here just kind of a general outlook on the high capacity side.

Yes, we still have one big customer as you're well aware of and we are beginning to ramp the smaller versions of customers in that in that same product lines. So we have we don't just have one customer on it we have quite a few albeit not as big as that the one customer again as we mentioned before I think the biggest thing that will help us as the <unk>.

Memory controller that is taped out and hopefully we can get that thing starting to design in the end of this year and early next year. So we can start ramping some some larger customers on that but it's going to take some help because not everybody wants to use that ASP.

P J versus an ASIC solution.

Okay.

How is the.

The environment for other FCT or excuse me SSD controllers.

You've kind of looking for a broader ecosystem there or is that still expected here is it do you expect pfizer to be your primary partner.

Well right now Pfizer onto Brian because they're kind of in the lead we are working with other memory controllers as we go through this so we are trying the best we can to at least build some credibility and because we had the one customer they do a lot of people are starting to see that.

<unk> technical definitions of our products and the interfaces. So that makes it easier for them. So we're doing all of that we've been doing it for it's not a process since I got here. This is a process that's been going on for at least the last year.

So that'll help us a lot and I think the other thing thats going to help us with S. T T. As we as we tape out. The next version of the product, which is our lower density version that helps a lot because that does have all standardized interfaces on it and density that we think have high volumes. So not only is the STD that we have today for the enterprise important to us.

I think that the future is also pretty rosy with the products we have on the roadmap.

Okay.

Yeah, I've got a couple of questions, but I'll separate line here to see if there's others in the queue, if not I'll jump back in the right way. Thanks, a lot Jerry.

Thanks Richard.

Thank you once again as a reminder to ask a question just press star one on your telephone keypad again, just press Star and then the number one on your telephone keypad.

Okay.

Our next question comes from Richard <unk>.

Craig Hallum.

Please go ahead.

Well I got back in right away all right.

Okay.

Yeah.

Per one of your last comments, there darrin about the lowered <unk> I'm not sure. If I have asked you. This question before but when should we expect that.

Those products to be qualified and start to ramp you know so I mean, obviously, there's a you probably have a good idea when the when they'll start to be available for production, but I assume some of these design cycles may last some time in certain of those markets. So when do you foresee that becoming a more noticeable part of your overall revenue profile.

Well I think so we'll get the product at least samples early next year.

We will have the models out before that the models would be out late this year, which helped people will do will help people with the reference designs and such and so as we kind of move through this I would expect to start seeing those design wins.

Early next year and as you know, it's going to probably take a year. So we will see a little bit of volume next year, but I would anticipate most of the volume to be 2023.24 timeframe.

Okay, Alright thats helpful.

Jeff I wanted to ask on an embedded M Ram.

How is that looking heroes that ramping versus your expectations of say six nine months ago.

And if there's any way you can characterize how meaningful it is on a run rate basis today, and where do you think it can go.

Well, it's where we thought it would be which is not going to be huge right.

If it's a small potato. Thank today because the products that are currently shipping are not super high volume for global foundries and so as they begin to get more customers, we're going to see more volume on that the great thing is the proof points. On this are a couple of devices that are pretty well known in the industry. So that's encouraging to us, but I don't anticipate.

<unk> of that to be.

A huge amount of the revenue for another two to three years at least.

Okay.

Alright, that's helpful and then during a question or maybe two on the design wins I think you said you're on pace to equal number of design wins, Jed last year, which was a record.

I guess.

It would be great to hear our thoughts on the number of wins, but size of wins are there.

Are there are your expectation of seeing the design wins the values go up here in any meaningful way.

I'm just trying to get a sense of overall overall pipeline value, Yes, let me answer the question a little differently. So.

What I looked at the other day, because we were doing a review of our sales and I looked at it there was probably five customers let's.

Let's say a year to a year and a half ago and most of those customers were.

Over 1 million to $2 million for the year Tam time point, they were pretty big and so those customers were just a massive amount like the types of the top 20 customers were 40, 44% of the total volume.

We're starting to see which I think is really really encouraging is we're starting to see that things really kind of blow out where there's a lot more customers that are 500000, and new per year versus these big customers and so that's encouraging to us because we're starting to see more homes and more diverse markets and it's a nice thing to it's a nice.

To be at because it's not just one big customer moving the needle and then potentially having risk it's multiple different customers all in that smaller range, which is just continuing to add and I would say that thats. The biggest reason, while we're growing is a diversification of growth and the fact that there is multiple customers with these lower revenue streams, but.

It's still meaningful and they all add up and I think that's the big thing because we have lost quite a few big customers and $1 million over the last couple of years and so now youre starting to see that thing grow back with a lot more diverse customer base.

Okay, Great perspective last quick one for me Darren on <unk>.

On Rad hard here.

I think when you announced this license.

And my recollection is.

Last quarter in Europe near then.

I think your expectation of eventually being able to ship Rad hard parts here, but.

But I thought it was maybe a couple of years into the future. Maybe you can refresh our or update us on when that may happen and what are the what are the what's the potential size of this part of the market.

Yes. This is this is a two to three year deal. So this is this was developing our products on our technology and running it through our fab. So theres. The milestones that are out there are really development and process integration milestones. So so what happens is we signed the license, but then there is a lot of.

A lot of activities that need to go through it to actually recognize the way. These contracts are written we have to recognize that revenue through time. So we expect that we will recognize that revenue and then at a later date youre actually going to get royalties off the products that you ship. So we expect those products to be shipping in the 'twenty I'm going to argue it's probably 2020.

Three timeframe is where you start to see those shipments so youll see some of the NRA that we're gaining today on our milestones youll see that translate into royalty is not as big for sure, but it's a great revenue stream.

Okay.

Last quick question and I'll get out of line here just on the on the model here in terms of Opex, how should we see that in dollar terms.

And I guess I think it more of a in a pro forma basis, including stock comp, but if you want to talk about it in the GAAP, that's fine too, but how should we see the.

The transition here over the next few quarters go with Opex.

Yes, so that's a great question, Richard so from an Opex standpoint.

We're seeing some increases in R&D that were expected related to the 28 nanometer next generation product and supporting that we saw an uptick last quarter I think we will see minimal increases from the prior quarter kind of sustaining at those levels.

One of the things that we've done in Q2, as we've been able to reduce SG&A spending to offset some of those things. So youll see that in the model for Q2 and so on.

Overall, we would say we're trying to keep it within.

10% or less of growth in terms of modeling perspective.

And that doesn't.

Lot of that investment that we have is not it does run out like the reason I'm, saying run out is because we're doing a lot of upfront investment in both the technology front and modeling of the technology and also the product design itself. So you'll see a lot of that stuff happen in the next probably 12 to 18 months and then it starts to reduce itself.

Overtime.

Okay, Alright, that's good perspective, I think thats all from me guys. Thank you.

Thank you alright. Thanks.

Thank you Richard our next question comes from the line of Fred Zinn drug Gill from Needham and company. Please go ahead.

Hi, Darren this is actually on for Rajeev Tonight I just wanted to ask a question about the cost increase can you guys provide any of the details.

What kind of specific cost increase are you actually seeing in our supply chain and how those are being passed on to you.

Yes.

You'll have you'll have for instance, a an assembly test person that says hey, we're getting increases and your substrate costs and there could be 5% to 10% something of that nature. Some people youll see a 30% in a package costs, because it's constrained or more utilization of testers and different switchover. So.

It's in all different forms right now, depending on which which supplier. It is but we're starting to see those increases and we don't necessarily want to pass them off to our customers because we're in that design win and growth phase. So I don't think that's appropriate we could do that a lot of companies are doing that but we've chosen not to and so our plan is often.

Set those by doing cost reductions of our own and margin improvement in yield improvement.

And would you say that these have just kind of cropped up this quarter and the assembly and test kind of phase of production or so it's been going on for a little longer or are these more recent.

I mean, the discussions we're having late last year, obviously, everybody is fighting changing suppliers doing all sorts of stuff to try to mitigate some of the challenges that are in the supply network itself, but.

And I expect them to go through 2023, probably 2022 at a minimum and then the thing is going to flip because then there's going to be more capacity than anyone ever wanted and then we will have the suppliers, albeit different seat than they are today, but I mean, it's everybody stay on it.

Gotcha and then for my follow up could you, it's a bit of a more high level question would you mind kind of talking about kind of how you view the mix of toggle in SPT going forward you know you've got the older. The newer one do you expect the toggle will be kind of in play for a while or do you plan to at some point position to just SDC or even a newer products. How do you think about that.

Think of toggle is kind of the workhorse for Super reliable.

Hi data retention I don't know that we have had failed or cell field failures.

Ever on toggle and so it's just a very robust product that has a specific niche and we're growing that initiatives. We go because people are starting to realize that having smaller lighter memories.

They don't ever have to replace or solve it for factory automation like we talk about an industrial and some automotive applications. So you're going to seek toggle continue to grow I think in the past people are like they just didn't focus on it and we're focusing heavily on cargo because it's a profitable product for outer run for us to run and we have additional capacity that we own.

One that we can run it on so the good news is minus Assembly test toggle is not constrained FTE.

<unk> on the other hand is a bigger broader product that's developed outside of our our factory footprint, which means we're relying on sub cons and different things and Thats a whole different technology. Our advanced products. The next one is coming out right now are going to be based on STD. Because they are scalable toggle is not you can't really do a whole lot of reductions on it.

But it does have homes in these markets I discussed earlier FTP is going to have more homes and those homes are going to be both an SRAM and also in nor over time, and we talked a little bit about that we can actually displace some of the newer technology with this product.

Got it that was really helpful. Appreciate it.

Yes.

Okay.

Thank you. Our next question comes from the line of Greg Johnson of RBC Capital. Your line is open.

Hey, guys. Thanks for the.

Taking the questions just a little follow up on Richard's question on the design wins.

Since you were willing to give some color I might see if how much more color you would be willing to give on that as far as.

These $500000 plus these are still good longer term type of contracts and how many of these do you foresee possibly getting into the to those larger $1 million to $2 million.

Maybe even plus.

Well I think I think if you get a $500000 per year when it usually turns it to multiple things because what will happen is people then are attracted to your product they find different homes for their products. So I always tell people you would start to get in a $100000 order before you get the $2 million order. So the good thing is these customers and once.

They see our support our supply our reliability and all the other things about the product and youre going to start to see that grow. So for me the risk is much lower or having a $100.500000.

Customers versus 5 million customers and so we're trying to look at it that way is just like hey, let's find this diverse doesn't mean, we won't go after the big fish, but those big fish also turn into risky things, which it did in the past because I think a onetime toggle was running at 12 or $13 million a quarter and then it dropped way down and now we're kind of fighting.

Way back up to those levels and we have SPT and we will have a new SSD products. So we're a lot more bullish on the especially as we focused on it and we've been focusing on these design wins for about three years.

Good good to hear the numbers continue to be strong there and then on the any update on anything on the Adas instead of the business.

Yes, I mean, the fires on ASIC is in play we've heard it taped out.

We've been watching that as I said last call I thought we were on their website, which is really really cool.

But then it's just going to take time for people to be able to design it in and those things so, but we expect to see some some good evidence of that working next year. So I would expect that at least get a few design wins as we go through this and hopefully a couple of big ones.

Alright, any any anything on a timeframe on any of those as far as in process or that's still.

Not yet well, we have a few little ones right now, but those are those with custom designs.

But now based on the <unk>. So once the phase one thing actually comes out then I will have more clarity on that but my expectation is that we actually do have a lot more opportunity to win because it's easy to design. It and then they have a reference design.

Whereas if we didn't have that for the original product that we shipped on the one gig.

Okay right.

Alright. Thanks.

Got it.

Thank you and our next question comes from the line of Michael Saylor Srd. Your line is open.

Hey, good afternoon, guys. Thanks for taking my question and congrats again to the team on a great quarter a lot of good momentum there.

Two quick questions for me I wondered if you had any comments on a competitor of yours recently announced a SPT in round products.

And that competitor.

Avalanche.

Sure.

We expect them, that's a lower density product and what we provide.

And there's always competition I don't know that they've shipped anything to my knowledge I don't know if theyre shipping at the specifications look pretty good.

From what I can tell so I'm not going to dismiss that we have competition. The good news is that we will have more than one person in the market and.

And then you have more than one person in there is probably going to be a lot more opportunity for both.

Okay. Thanks for that and then my last question just real quick any update on the official executive search process I noticed that you.

Both of your titles are still Interims I was just curious on timing and process. There. Thank you.

Yeah.

We're looking at I'll tell you this.

We're looking at for both laughing, because we said someone's going to ask US that question than you did so that was great.

Yes. So so bottom line is yes, we're looking at that the board is looking at that and we will solve that.

All of that shorter weather, rather than a longer duration.

And you can count on the two of US both to be very committed to making sure that no matter what happens that <unk> got the right leadership team in here on the right group of individuals looking to.

Bill hit the results that <unk> been talking about so yeah, not a big issue for US right now, but we know that we have to either remove those titles or do something different and that's going to happen.

Yes, I mean I guess the question is what's your votes.

Just on the financials.

Yeah, do we need to change everybody based on the financial or you think we're doing okay. Okay.

Okay, I think youre doing just fine and keep up the good work and I'm glad to hear you're both on board for the long haul. So I just wanted to kind of clear that up. So thank you, yes, yes, no problem. Yeah. We don't we're not we're not going to leave anytime soon and we are definitely not going to leave the company high and dry.

Okay awesome. Thanks again congrats.

Got it thanks, Matt.

Thank you once again to ask a question just press Star and then the number one on your telephone keypad. This press star and then the number one on your telephone keypad.

There are no questions on queue I will now turn the call over back to Andy. Please go ahead.

Okay, but that said we conclude today's call. Thank you all for joining us and we look forward to reporting our progress and results in the next quarter. Operator, you may now disconnect. The call. Thanks, Rachel Thank you.

Thank you Darrin and answer this concludes today's conference call. Thank you for participating you may now disconnect.

Okay.

Thank you.

[music].

Okay.

Yes.

Okay.

[music].

Great.

[music].

Good afternoon, and welcome to the conference call to discuss ever spin technology second quarter, 2021 financial results.

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.

As a reminder, this conference call is being recorded today Thursday August 12.2021.

Before we begin the call I want to remind you that this conference call contains forward looking statements regarding future events.

But not limited to our expectations for ever spent future business financial performance and goals customer and industry adoption of AMRAAM technology success successfully bringing to the market and manufacturing products in ever spin design pipeline and executing on its business plan.

We would encourage you to review our S E SEC filings, including our second quarter report on Form 10-Q filed with the FCC on August 12, 2021, and other SEC filings made from time to time in which we may discuss risk factors associated with investing in ever spin.

All forward looking statements are made as of the date of this call and except as required by law, we do not intend to update this information.

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 ever spend and its external auditors.

Our actual results may differ materially from these estimates as a result of the completion of our financial closing procedures financial adjustments and other developments arising between now and the time that our financial results for this period are finalized.

The company's press release and statements made during this conference call will include discussions of certain measures and financial information in GAAP and non-GAAP terms.

Included in the company's press release are definitions and reconciliations of GAAP net loss to adjusted EBITDA, which provide additional detail.

This conference call will be available for audio replay for at least five days in the Investor Relations section of ever speeches website at www dot ever spin dotcom.

And now I'd like to turn the call over to ever spin executive Chairman and interim CEO Varian Biller back therein. Please go ahead.

Non-GAAP net income positive is a key milestone for the company. It is simple proof point that being laser focused on improving yields lowering opex spending and growing our top line will drive profitability, albeit at lower revenue levels. If your gross margin is higher.

Revenue for Q2, 'twenty, one was up 15% over Q1.21 for Q2 'twenty one.

S T T revenue bounce back increasing 56% and continues to gain traction as the market recovers.

Couple of years.

We continue to see strength in Q3, we're starting backlog over Q2 for industrial customers and we are encouraged to see that all four regions continue to grow.

S. T T revenue was back on track as expected in Q2 and continues to trend in line with the expectations for Q3, and Q4 design wins continued to grow in Q2.2021 as they did in Q1, we're on track to match. The design one total of 2021 versus 'twenty 'twenty as you.

You May recall 2020 was a record for design wins, we continue to focus our efforts now on turning those opportunities into real revenue with the only limiter being the in depth industry supply.

The biggest risk to our plan. This year continues to be about getting the capacity at the committed pricing and the tight capacity situation worldwide as.

As we discussed last quarter, we Wanna Rad hard design collected $3 million in cash and finally this quarter, we're able to recognize some of the revenue Q2 revenue did include about $1.2 million in licensing revenue and we expect to recognize the rest of the ring remaining portion of the $3 million based on development milestones.

For the next couple of quarters.

I will now turn the call over to interim CEO, CFO and new Jaguar Wall, who will take you through our Q2 quarterly financials and Q3 quarter 2021 guidance.

<unk> eight 5 million compared to $10.3 million last quarter and $11.8 million in the second quarter of 2020 and.

<unk> product sales in the first quarter, which included both toggle and S. T M a M.

Quarter end, <unk> 9 million in the prior year period.

The increase in revenue is due to strong SD T cells and Rad hard revenue recognition offsetting the yearly true up and royalty that was recognized in Q1 shipments to suppliers for our largest end customer who we serve with our high density SPT product for data center applications represented 34, 7% of revenue in the quarter.

Versus 25, 6% of revenue in Q1, and 34, 4% in the year ago quarter, turning to gross margin GAAP gross margin for the second quarter of 2021, 67% versus 58, 2% in the prior quarter and 43, 9% in Q2.2020.

The higher gross margin is driven by Rad hard revenue recognition had improved yields GAAP.

GAAP operating expenses in the second quarter of 2021 included <unk> 7 million of stock based compensation compared to <unk> $74 million last quarter, and 92 million in the year ago quarter, We expect R&D to grow minimally the remainder of 2021 as we prepare for the launch of our 28 nanometer S T.

T M M product targeted at industrial and other based applications for the first time in company history. We are reporting a positive net income of point to $5.6 million or one cents per share based on $19.3 million basic weighted average shares outstanding. This compares to a GAAP net loss of 460.

At 1.1 million for the first half of the year turning to our third quarter guidance. We expect revenue in the range of $11.7 million to $12.7 million, which at the midpoint of $12.2 million represents a 3% increase over the 11.9 million from the second quarter of this year, we expect.

GAAP loss per share of between negative <unk> <unk> and negative seven.

Primarily driven by expenses related to next generation in 28 nanometer S. T T M Ram product and price increases from our suppliers I'll now turn it back over to Darren for some brief additional commentary before we open it up for questions.

Thanks <unk> in summary, we continue to build towards a profitable future Q2's, GAAP net GAAP positive net income is a testament to the hard work and extra effort ever spend team put in to control our cost improve our yields and ship everything that we could in a very constrained semiconductor supply network and we're both excited by what we accomplished in Q2.

Along with our potential opportunities to grow throughout the year. Operator, you may now open the line for questions.

Thank you Darren and as a reminder to ask a question. Please press star and then the number one on your telephone keypad again, just fresh start and then the number one on your telephone keypad and to withdraw your question just press the pound key.

We will pause for a moment to compile the Q&A roster.

Yeah.

Our first question comes from the line of Richard Shannon from Craig Hallum, who still had.

Yeah.

Hi, guys. Thanks for taking my questions and congratulations on the first quarter of GAAP net income.

I'm sure this is Don.

Time for you guys and celebrate congrats on that.

Maybe just a couple quick tactical questions here by the way can you hear me I'm getting a little feedback on the line with me is okay for you Debbie Yes, we can hear you perfectly now we can hear you okay alright.

Alright good.

Just talk a little bit on the guidance here for the quarter.

Can I get a lot of feedback here I'm Gonna go to give me a second and I go off my.

My headphones here is working very well.

Alright, let's try it this way.

The guidance for the quarter I couldn't do the quick math in my head regarding and guessing how much of the Rad hard license and other licensing I'm.

This is going to build into the third quarter revenue numbers. So maybe I'll ask the question another way which is are.

Are we going to see product growth here happening in the third quarter sequentially.

Yes. The answer is product growth actually grew its grown every quarter right. It was up Q1 to Q2 was about up about 13% and then in Q3, it's going to be up again.

Yes, okay.

Okay that is helpful. And then anyway that you can help us think about the gross margins here for the for the guidance as well obviously moving parts you think within licensing can move that here. So maybe you can help us out think about that directionally that would be a big help.

Yes sure this is on a.

Gross margin, we don't typically guide on gross margin.

But I will say for modeling purposes, I think you could stick to about mid to low 50 is for gross margin.

As you would expect in Q1, we had a royalty true up in Q2, we're seeing higher yield than some of the Rad hard.

<unk> driving higher margins, but there is some risk to supply chain costs, increasing and so that way we were.

Think that the mid to low fifties is fair.

Okay fair enough.

Darren a quick question on supply constraints does this impact you equally across toggle and S E T or is it more on the topic.

It's probably more on the toggle side as you saw in Q2 actually our toggle was flat to down in Q2, where you <unk> was up quite a bit. So we were able to at least two we built enough inventory as he move through on the STD products that we didn't have as big a constraint the big issues on toggle weren't necessarily front end.

Were backend so it looks like packaging and test and some of this frankly constraints on that.

So you know one other thing I want to mention that we are trying to be somewhat conservative Richard because you know that.

Company has been known for missing guidance a lot. So as we kind of work through these things and we're going to see some cost increases because we've already been.

Pushed on that front, but we're trying to model and maybe maybe were a little too conservative on that but I'd, rather be a I'd rather be upfront about what the constraints are and the price increases then you don't have it be a surprise.

Okay. That's fair enough appreciate that detail.

Let's see a couple of questions on the on your <unk> kind of outlook here post near and long term.

I guess I'd love to hear a little bit about engagement with your high capacity of <unk>.

Where we're that's how that's progressing new applications customers, who recently ramped here just kind of a general outlook on on the high capacity side, yes.

Yeah, we still have one big customer as you're well aware of and we're beginning to ramp the smaller versions the customers in that in that same product lines. So we have we don't just have one customer on it we have quite a few albeit not as big as that the one customer again as we mentioned before I think the biggest thing that will help us as the <unk>.

Okay.

The environment for other FCT or excuse me SSD controllers, I know you've kind of looking for a broader ecosystem there or is that still expected here is it do you expect pfizer to be your primary partner.

Well right now Python's O'brien, because they're kind of in the lead we are working with other memory controllers as we go through this so we are trying the best we can to at least build some credibility and because we had the one customer we do a lot of people are starting to see that.

It is it is more difficult when you're our size to be able to do that so we can't obviously, we can't press people to get these things done, but we can make sure that they have all the capabilities and all of the the technical definitions of our products and the interfaces. So that makes it easier for them. So we're doing all of that we've been doing it for it's not a process since I got here. This is a process thats been.

Going on for at least the last year.

So that'll help us a lot and I think the other thing that's going to help us with S. T T. As we as we tape out. The next version of the product, which is our lower density version that helps a lot because that does have all standardized interfaces on it and density that we think have high volumes. So not only is the STD that we have today for the enterprise important to us we.

The future is also pretty rosy with the products we have on the roadmap.

Okay.

Yeah, I've got a couple of questions, but I'll separate line here see if there's others in the queue, if not I'll jump back in right away. It takes a lot here okay. Thanks Richard.

Thank you once again as a reminder to ask a question just press star one on your telephone keypad again, just fresh start and then the number one on your telephone keypad.

Okay.

Our next question comes from Richard <unk> of <unk>.

Helen.

Please go ahead.

Well I got back in right away alright.

Okay.

Yeah.

Per one of your last comments there Darren about the lowered Ncs's T. I I'm not sure. If I have asked you. This question before but when should we expect that.

Those products to be qualified and start to ramp you know so I mean, obviously, there's a that you're you you probably have a good idea when the when they'll start to be available for production, but I assume some of these design cycles made last some time in certain of those markets. So when do you foresee that becoming a more noticeable part of your overall revenue profile.

Well I think so we will get the product at least samples early next year.

We will have the models out before that the model would be out late this year, which helped people will do will help people with their reference designs and such and so as we kind of move through this I would expect to start seeing those design wins.

Early next year and as you know it is going to probably take a year. So we will see a little bit of volume next year, but I would anticipate most of the volume to be 'twenty 'twenty three 'twenty four time frame.

Okay, Alright thats helpful.

Jeff I wanted to ask on an embedded M Ram.

How is that looking heroes at ramping versus your expectations of say six nine months ago.

And if there's any way you can characterize how meaningful it is on a run rate basis today, and where do you think it can go.

Yeah, well, it's where we thought it would be which is not going to be huge right. It's it's if it's a small potato thing today because of the the privates that are currently shipping are not super high volume for global foundries and so as they begin to get more customers, we're going to see more volume on that the great thing is the proof points on this are a couple of devices that are pretty.

Well known in the industry, so that's encouraging to us.

But I don't anticipate that to be a huge amount of the revenue for another two to three years at least.

Okay.

That's helpful and then during a question or maybe two on the design wins I think you said you're on pace to equal number of design wins that you had last year, which was a record.

I guess it would be great to hear are not on the number of wins, but the size of the wins are there.

Are there.

Vacation is seeing the design wins the values go up here in any meaningful way.

Just kind of get a sense of overall overall pipeline value, Yes, let me answer the question a little differently. So so what what what I looked at the other day, because we were doing a review of our sales and I looked at it there was probably five customers.

Let's say a year to a year and a half ago and most of those customers were.

Over 1 million to $2 million for the year Tam time point, they were pretty big and so those customers were just a massive amount like the types of the top 20 customers were 44, 44% of the total volume what we're starting to see which I think is really really encouraging is we're starting to see that thing really kind of blow.

Out where there's a lot more customers that are 500000 and new per year versus these big customers and so that's encouraging to us because we're starting to see more homes and more diverse markets.

And it's a nice thing to it's a nice place to be at because it's not just one big customer moving the needle and then potentially having risk it's multiple different customers all in that smaller range, which is just continuing to add and I would say that thats. The biggest reason and while we're growing is a diversification of growth and the fact that there is multiple customers.

With these lower revenue streams, but still meaningful and they all add up and I think that's the big thing because we have lost quite a few big customers and $1 million over the last couple of years and so now youre starting to see that thing grow back with a lot more diverse customer base.

Okay, Great perspective last quick one for me Darren on <unk>.

Rad hard here.

I think when you announced this license.

My recollection is.

Last quarter in Europe near then.

Thank you for your expectation of eventually being able to ship Rad hard parts here, but.

Yes. This is this is the two to three year deal. So this is this was developing our products on our technology and running it through our Fabs. So theres all the milestones that are out there are really development and process integration milestones. So so what happens is we signed the license, but then there is a lot of.

Okay.

Last quick question and I'll get out of line here just on the on the model here in terms of Opex, how should we see that in dollar terms.

And I guess I think it more of a in a pro forma basis, including stock comp, but if you want to talk about it in the GAAP, that's fine too, but how should we see the the.

The transition here over the next few quarters go with Opex.

Yeah. So that's a great question, Richard so from an Opex standpoint.

Are seeing some increases in R&D that were expected related to the 28 nanometer next generation product and supporting that we saw an uptick last quarter I think we will see minimal increases from the prior quarter kind of sustaining at those levels are one of the things that we've done in Q2, as we've been able to reduce that.

SG&A spending to offset some of those things so youll see that in our model for Q2, and so overall, we would say we're trying to keep it within.

10% or less of growth in terms of modeling perspective.

And that doesn't.

Lot of that investment that we have is not it does run out like like the reason I'm, saying run out is because we're doing a lot of upfront investment in both the technology front and modeling of the technology and also the product design itself. So you'll see a lot of that stuff happen in the next probably 12 to 18 months and then it starts to reduce itself.

Overtime.

Okay, Alright, that's good perspective, I think thats all from me guys. Thank you.

Thank you alright. Thanks.

Thank you Richard our next question comes from the line of Fred Bindra Gill from Needham and company. Please go ahead.

Hi, Darren this is actually Ben on for Rajeev Tonight.

Wanted to ask a question about the cost increase can you guys provide any of the details.

What kind of specific cost increase are you actually seeing in our supply chain and how those are being passed on to you.

Yeah, I mean, what you'll have you'll have for instance, a an assembly test person that says hey, we're getting increases and your substrate costs and there could be 5%, 10% something of that nature. Some people youll see a 30% in a package cost because it's constrained or more utilization of testers.

Different switchover. So it's in all different forms right now, depending on which which supplier. It is but we're starting to see those increases and we don't necessarily want to pass them off to our customers because we're in that design win and grow fast. So I don't think that's appropriate we could do that a lot of companies are doing that but we've chosen not to.

So our plan is offset those by doing cost reductions of our own and margin improvement in yield improvement.

And would you say that these have just kind of cropped up this quarter and the assembly and test phases of production or so it's been going on for a little longer or are these more recent.

But no there and I expect them to go through 2023, well probably 2022.

At a minimum and then the thing is going to flip because then there's going to be more capacity than anyone ever wanted and then we will have the suppliers, albeit different seat than they are today, but I mean, it's everybody stand it.

Gotcha and then for my follow up could you, it's a bit of a more high level question would you mind kind of talking about kind of how you view the mix of toggle in S. E. T going forward you know you've got the older. The newer one do you expect the toggle will be kind of in play for a while or do you plan to at some point physician to just STC or even a newer product how do you think about that.

Think of toggle is kind of the workhorse for Super reliable.

Hi data retention I don't know that we've had failed fell field failures ever.

Ever on toggle and so it's just a very robust product that has a specific niche and we're growing that initiatives. We go because people are starting to realize that having smaller lighter memories.

They don't ever have to replace our solid for factory automation like we talk about an industrial and some automotive applications. So you're going to seek toggle continue to grow I think in the past people were like they just didn't focus on it and we're focusing heavily on cargo because it's a profitable product for outer run for us to run and we have additional capacity that we own.

One that we can run it on so the good news is minus Assembly test toggle is not constrained FTE.

<unk> on the other hand is a bigger broader product that's developed outside of R.

Our factory footprint, which means we're relying on sub cons and different things and Thats a whole different technology.

The advanced products. The next one is coming out right now are going to be based on STD. Because they are scalable toggle is not you can't really do a whole lot of reductions on it but it does have homes in these markets I discussed earlier STP is going to have more homes and those homes are going to be both an SRAM and also in nor overtime when we talk.

A little bit about that we can actually displace some of the newer technology with this product.

Got it that was really helpful. Appreciate it.

Yes.

Okay.

Thank you. Our next question comes from the line of Greg Johnson of RBC Capital. Your line is open.

Hey, guys. Thanks for the.

Taking the questions just a little follow up on Richard's question on the design wins.

You were willing to give some color I might see if how much more color you would be willing to give on that as far as.

These $500000 plus these are still good longer term type of contracts and how many of these do you foresee possibly getting into the to those larger one to 2 million, maybe even plus.

Well I think I think if you get a $500000 per year when it usually turns it to multiple things because what'll happen is people then are attracted to your product they find different homes for their products. So I always tell people you would start to get in $100000 order before you get the $2 million order. So the good thing is these customers and once.

They see our support our supply our reliability and all the other things about the product and youre going to start to see that growth. So for me the risk is much lower or having a $100.500000.

Customers versus $5 million customers and so we're trying to look at it that way is just like hey, let's find this diverse doesn't mean, we won't go after the big fish, but those big fish also turn into risky things, which it did in the past because I think a onetime toggle was running at 12 or $13 million a quarter and then it dropped way down and now we're kind of fighting.

Our way back up to those levels and we have SPT and we'll have a new SD products. So we're a lot more bullish on this especially as.

As we focused on it and we've been focusing on these design wins for about three years.

Good good to hear the numbers continue to be strong there and then on the any update on anything on the asics out of the business.

Yes, I mean, the fires on Asics is in play we've heard it taped out.

Ben Watson that as I said last call I thought we were on their web site, which is really really cool.

Alright, any any anything on a timeframe on any of those as far as in process or that's still not yet well we have a few little ones right now, but those are those with custom designs.

But not based on the Python. So once the phase one thing actually comes out then I'll have more clarity on that but my expectation is that we actually do have a lot more opportunity to win because it's easy to design. It and then they have a reference design.

We didn't have that for the original product that we shipped on the one gig.

Okay right.

Alright. Thanks.

Got it.

Thank you and our next question comes from the line of Michael Saylor of SRT. Your line is open.

Hey, good afternoon, guys. Thanks for taking my question and congrats again to the team on a great quarter and a lot of good momentum there.

Two quick questions for me I wondered if you had any comments on a competitor of yours recently announced STP and Ram product.

And that competitor.

Of a launch.

Sure.

We expect them, that's a lower density product and what we provide.

And there's always competition I don't know that they've shipped anything to my knowledge I don't know if theyre shipping at the specifications looked pretty good.

From what I can tell so I'm not going to dismiss that we have competition. The good news is that we will have more than one person in the market. When you have more than one person and then there is probably going to be a lot more opportunity for both.

Okay. Thanks for that and then my last question just real quick.

Any updates on the official executive search process I noticed that.

Both of your titles are still interim so I'm just curious on timing and process. There. Thank you.

Yeah.

We're looking at I'll tell you. This so were looking at were both laughing because we said someone's going to ask us that question than you did so that was great.

Yes. So so bottom line is yes, we're looking at that the board is looking at that and we will solve that.

All of that shorter weather, rather than a longer duration.

And you can count on the two of US both to be very committed to making sure that no matter what happens that you've got the right leadership team and are in the right group of individuals.

<unk> hit the results that <unk> been talking about so yeah, not a big issue for US right now, but we know that we have to either remove those titles or do something different and that's going to happen.

Yes, I mean I guess the question is what's your vote.

Based on the financials.

Yeah, do we need to change everybody based on the financials or you think we're doing okay.

I think youre doing just fine and keep up the good work and I'm glad to hear you are both on board for the long haul. So just wanted to kind of clear that up. So thank you, yes, yes, no problem. Yeah. We don't we're not we're not going to leave anytime soon and we are definitely not going to leave the company high and dry.

Okay awesome. Thanks again congrats.

You got it thanks, Matt.

Thank you once again to ask a question just press Star and then the number one on your telephone keypad. This press star and then the number one on your telephone keypad.

There are no questions on queue I will now turn the call over back to Andy. Please go ahead.

Thank you Darrin and answer this concludes today's conference call. Thank you for participating you may now disconnect.

Q2 2021 Everspin Technologies Inc Earnings Call

Request a DemoDemo

MRAM

Everspin Technologies

Earnings