Q3 2021 Everspin Technologies Inc Earnings Call
Ladies and gentlemen.
<unk> ever spent technologies third quarter 2021 financial results conference call will begin momentarily.
Again, please standby your conference call will begin in five minutes. Thank you.
Yeah.
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Okay.
Good afternoon, and welcome to the conference call to discuss ever spin technologies third quarter 2021 financial results.
At this time all participants are in a listen only mode.
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 November 11th 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 since future business financial performance and goals customer and industry adoption of our a M technology.
Definitely bring into market and manufacturing products can ever since design pipeline and executing on its business plan.
These forward looking statements are based on estimates churchman 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.
I would encourage you to review our S E SEC filings, including our third quarter report on Form 10-Q, which will be filed with the F. E. On November 13, 2021, and other SEC filings made from time to time in which we may discuss risk factors associated with investing in everything.
All forward looking statements are made.
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 they are subject to future further review by every spin and as external auditors.
Actual results may differ materially from these estimates as a result of the completion of our financial closing procedures final adjustments.
Okay.
In other developments arising between now and the time of our financial results for this period are finalized.
Additionally, the company's press release and statements made during this conference call will include discussion of certain measures and financial information in GAAP and non-GAAP terms.
And the company's press release are definitions and reconciliations of GAAP net loss to adjusted EBITDA, which provides additional details.
This conference call will be available for audio replay for at least five days in the Investor Relations section of ever since website at Www Dot every spin dot com.
And now I'd like to turn the call over to ever since executive Chairman and interim CEO Darin dealer back Darren. Please go ahead.
Thank you operator, and thanks for everyone for joining us on the call today first and foremost let's begin today by recognized recognizing all those among US who have been part of the great Brotherhood and Sisterhood, we call. The U S. Military veterans active active duty service members Guardsmen and reservists Youre <unk>.
And sacrifice of kept our country safe and free.
Q3 results came in above the higher end of our guidance as mentioned in our press release, we were GAAP net income positive for the second quarter in a row and had positive GAAP net income for the first nine months of 2021, our revenue for Q3 was 25% higher than Q2, and 46, 5% higher than Q3, a year ago.
Being GAAP net income positive continues to be a focus for the company.
This demonstrates that being laser focused on improving product yields controlling opex spending growing our top line, while keeping gross margins in a healthy range will drive profitability.
Despite being impacted by supply constraints that left over $2 million of customer revenue unfulfilled, we had the largest toggle quarter. Since 2018 distributor inventory is still very lean and well below our target as we continue to fight for every wafer and test or we can STP revenue was flattish as our largest.
Customers also saddled with supply constraints. The good news is that ever spend was not the constraint culprit hover based on other suppliers. We do expect STP revenue to continue to be flat for the next couple of quarters to date over 500 customers have now reached production status using Standalone ameren.
Our design wins continue to grow keeping pace with a record year in 2020, adding another 40, new design wins in the current quarter. These design wins across many applications in all geographies, including industrial automation robotics transportation Aerospace and defense on the R&D front, we taped out our next generation SPT.
<unk>, which we expect to see first silicon out by the end of this year will lead this new product will be revolutionary in its ability to serve both the SRAM replacement market along with mid density Rev. Ignore applications, where no. Other memory can play finally, we respect with respect to our deliberate strategy of monetizing our IP, we did close two more IP transit.
Actions in addition to the Rad hard deal we announced previously in Q1, one of those transactions has been recognized as revenue in Q3, while the other will be recognized as revenue in Q4 post Q3 results. The cash from both these transactions has already been collected which puts our cash and cash equivalents over $20 million as of today.
I will now turn it over to Darcy to our CFO and huge AGR wall, who will take you through our third quarter financials and fourth quarter of 2021 guidance.
Yes.
Thank you Darren and good afternoon, everyone. We're pleased to report record quarterly financial results, reflecting improvement in the business and operational excellence, we delivered solid results with a positive net income of <unk> eight.
Eight 8 million with revenue growth of 25% exceeding the top end of guidance and positive cash flow from operations of $1 $85 million for the third quarter. Despite some <unk>.
Supply constraints revenue for the third quarter of 2021 came in at $14 8 million compared to 11, eight 5 million last quarter and $10 1 million in the third quarter of 2020.
MRM product sales in the third quarter, which include both toggle and S. E. T. M. Ram revenue was $12 million versus $10 2 million in the prior quarter and $9 6 million in Q3 2020 and.
In Q3 2021, the company entered into an IP monetization deal, where it's $5 5 million $1 3 million in revenue was recognized in Q3 and the remaining $395 million of revenue will be recognized in Q4 of 'twenty, one licensing royalties and other revenue in the quarter was $2 8 million compared to $1 <unk>.
$6 million in the previous quarter, and <unk> 5 million in the prior year period the increase in revenue.
Is due to strong toggle sales.
Rad hard revenue recognition and the IP monetization deal.
Shipments to suppliers for our largest end customer who we serve with our high density <unk> products for data center applications represented 23, 3% of revenue in the quarter versus 34, 7% of revenue in Q2 and 38, 4%.
The year ago quarter, turning to gross margins GAAP gross margin for the third quarter of 2021 was 57, 1% versus 67% in the prior quarter and 23% in Q3 'twenty.
The higher gross margin compared to prior year quarter is driven by the Rad hard revenue recognition and the IP monetization deal.
In the prior year.
Lower gross margin was reflected.
A onetime noncash $1 7 million inventory reserve and <unk> 4 million in accelerated depreciation.
GAAP operating expenses for the third quarter of 2021 or 7.4.
4 million versus $6 7 million in the prior quarter and $6 million in the same quarter one year ago. The increase was primarily for 28 nanometer product development sales and marketing variable compensation and administrative costs.
GAAP operating expenses in the third quarter of 2021 include $1 million of stock based compensation compared to <unk> 7 million last quarter, and <unk> 9 million in the year ago quarter, We expect R&D expense to grow minimally.
The remainder of 2021 as we prepare for the launch of our 28 nanometer FCT amarin product targeted to industrial and other broad based applications. We are pleased to report a positive net income of <unk>, eight 8 million or <unk> <unk> per share based on $19 5 million basic weighted average.
<unk> shares outstanding. This compares to a GAAP net income of $2 6 million or one cent per basic share in the second quarter of 2021, and a GAAP net loss of $3 9 million or 21.
Per basis share in the third quarter of 2020 basic earnings per share of <unk> <unk> was better than our guidance range, reflecting our tight operational discipline and strong gross margins turning to the balance sheet cash and cash equivalents increased to $14 $5 6 million at the end of the third quarter compared to $14 2 million.
At the end of the prior quarter and $13 9 million in Q3, 'twenty cash from operations was positive at $1 $85 million for the quarter and $2 $95 million positive year to date.
Turning to our fourth quarter guidance, we expect revenue in a range of $16 5 million to $17 $25 million, which at the midpoint of $16 75 million reflects a 13, 2% increase over the $14 eight.
Million third quarter 2021 results the revenue range reflects the expected product revenue growth as.
As well as the remaining $3 nine $5 million of revenue expected to be recognized for the IP monetization deal discussed earlier, we expect a GAAP income per basic share of between <unk> and <unk>.
Primarily driven by expenses related to next generation 28 nanometer S TTM room product and pricing increases from our suppliers I'll now turn it over back to Darren for some brief additional commentary before we open it up for questions.
In summary, we continue to build towards our future profitable growth Q3's, GAAP positive net income is a testament to the hard work and extra effort ever spin team put to control costs improve our yields and ship everything we could in a very constrained semiconductor supply network. We are both excited by what we've accomplished in Q3, along with potential opportunities.
To grow throughout the rest of the year.
Operator, you May now open the line for questions.
Ladies and gentlemen, if you have a question at this time. Please press Star then the number one on your telephone keypad. If your question has been answered or you wish to remove yourself from the queue. Please press the pound key.
Again to ask a question. Please press Star then the number one on your telephone keypad.
Your first question comes from the line of Richard Shannon from Craig Hallum. Your line is open.
Hi, guys. Thanks for excuse me, taking taking my questions here, sorry for kind of developing questions here on the fly just get my mom would go on here.
Maybe just a quick one a new show on your towards the end of your prepared remarks here I didn't catch the reasons for the.
Lower product gross margins in the quarter I'm, assuming there is some supply constraints or expedite costs are something that are unusual can.
Can you repeat and expand on that and the degree to which you expect that to happen in the fourth quarter and beyond.
Yeah sure Richard Good afternoon, so typically we down.
Give guidance on gross margin in terms of Q4, but I will say that over the last couple of quarters. As you know we've seen a strong gross margin relative to our internal model. So the internal model, we typically communicate.
<unk> <unk> to mid fifties.
Because of the IP deals as they relate to the Rad hard deal and with this new IP monetization deal we have even seen an uplift in gross margin over the last couple of quarters.
Alright, but I was asking specifically on product gross margins if I'm doing my calculations right here was around 50 for the third quarter in a bit higher than that the last few quarters. So I just wanted to make sure I'm understanding the dynamics here and if theyre going to continue.
Yes.
I think from Otago perspective, we've seen some good yield improvements and great work from the operational team and so we've seen improvements in that space I think they would.
You know hold to these levels going forward.
Yes, so Richard some of the compression on the stuff on the margins is due to obviously cost increases there is a bunch of stuff going on in the supply network.
And we are overcoming that everybody's raising prices in.
In fact, we had to do with share prices, we've notified everybody of that to try to offset some of that but the model should be between 50, and 55% we'd been running hot last quarter first quarter and last quarter, we ran pretty strong due to the mix and when he talked about that before.
But I think the biggest thing for us as we move forward as the overall margin is very strong because of a lot of the IP monetization strategies that we've had but we do expect that model Youre based model for product specific margins to be in that $50 to 55 range and it's going to slide closer to 50, because we got so many price increases on us on the piece parts and everything else.
And it will move back up as the price increases come back in on our side to our customers.
Okay. That's that's helpful. There Darren.
Next question.
If I'm looking at the product gross margins here and I guess or excuse me product sales is just going to toggle side with a C. T. I think he said, there's roughly flattish quarter on quarter at some pretty nice growth and it seems like youre, implying some fairly strong growth.
Well, maybe not as strong, but still good growth here coming into the fourth quarter.
Both of you Darren in your predecessor talked about a fairly substantial increase in design wins for a couple of years and didn't really see toggle growing that much is now are we starting to see finally that evidenced those design wins running to.
Production or are there larger wins here that are ramping here because at the same time, we're seeing your largest customer kind of flatten out or actually I think decline. If my numbers are right here at least in the third quarter. So youre getting a lot of good toggle wins here and so we'd love to get the understanding of where they're coming from and how sustainable and how you see growth coming.
In the next few quarters.
Yes, I mean, the good news is.
I think that the abnormally high growth on toggle was caused by two things. One is that Q2 was low because we were so constrained in so many areas and the fact that we were able to kind of unhinged. Some things in Q3 that gave us the ability to ship so much toggle by itself and Thats and Thats, what probably call. It was probably less of a growth strategy.
And the 30%, it's more probably double digits as we were going through it but that's what happened and then when you look at Q4 moving forward Youre seeing a pretty big growth also when you look at those customers. There's no one big customer and in fact, most of the largest customers remember kind of walked away a couple of years ago, which caused toggle the kind of retreat from a growth perspective.
And now what we're starting to see is those design wins are coming to fruition and it's multiple people. We've added like two to 300 customers, albeit smaller but they are more diversified. So that's a good thing for us and we expect toggle at this point to grow through Q4 with pretty strong growth, we could ship quite a bit higher S. T T. If we.
Wanted to we could go in but again, our main youre just kind of put it in inventory and so we're trying to do is work with our large customers and make sure that they don't have too much inventory. So we've taken the ability to just say hey, let's call. It flat for Q3 and Q4 on STD. It could have been much higher. So I mean, we could have had even better results had that happen, but we're going to just.
Slow it down a little bit and take advantage of some of the other things we're doing as a company and then that should re grow in the future quarters.
Okay. That's helpful perspective, one last for me and I'll jump out of line here.
Your 28 nanometer FCT device here.
Darren I Wonder if you could repeat your comments.
About what what Theyre going after I think you said estrogen replacement and even some mid density I'm not sure. If you said nor or something but just wanted to get a repeat on that and then maybe if you can help help us understand kind of the value add the applications.
That you're going after here and how kind of how big of an opportunity to see this over the next few years.
Yes, so let's start with the product the product itself has the capability to do our traditional market, which is more kind of like data logging driven SRAM replacement stuff right and that's what we've done forever. That's what toggle does that's what a lot of the products that we serve in addition, we put all the interfaces on it because then it can also.
Act and be in dropping to a newer sockets and the reason we did that was because we believe that there is a market out there for highly reliable nor devices that nor itself today can't can't get too extreme temperatures exterior <unk> fast right, but it's a higher performance devices with higher retention and higher cycling counts.
Yeah.
Okay.
Great I think that's all for me I'll jump on the line. Thanks.
Your next question comes from the line of Raj Bindra Gill from Needham <unk> Company. Your line is open.
Hey, Good evening guys. This is Dennis on for Rajeev.
Good evening.
So my first question to us around some of these are drivers for toggle up how is the backlog looking and then you have is there.
New buying the product any kind of either new markets opening up our new customers.
Same old markets lots of new customers.
And yes, I mean, it's.
Good when you have lots of new customers that you haven't dealt within the past. It's good that you have a competitive product thats out there and it's good when you have supply and all those great things aligning it helped us a lot and we've been able to leverage some of the supply constraints that we head into Q2 thrive for upsides in Q3, we also can handle some up.
Besides in Q4, our backlog right now is stronger than it's ever been in fact, the last two quarters, we are 100% book.
Great.
As a follow up to that could you remind us of kind of what's been the split.
The end market splits for toggled versus STG, which readers each one SKU in terms of end markets.
Yes think of MTT as most of the enterprise right. So it's high speed cashing in the big drives right. So it's a big enterprise play toggle is more of the industrial robotics factory automation, just everything could be aerospace.
Announced the lucid design, which is an electric vehicle.
<unk> automotive also and Youre starting to see a lot of uptick in those types of applications, where we're finding that a lot of the electric car manufacturers and probably even some of the non electric are realizing that they can't have any failures and it's really difficult to get high retention products out there that they can count on for many many more.
Any years, especially when cars are becoming computers.
Great that's really helpful. Thank you.
For my second question.
With regard to the fires on partnership Bob is there anything new there I think the lesson because they were taping out.
The park, they're going well.
We researched that every quarter and it's the same message right. We looked at it. It was like they think production is going to be Q2 Q3 of 2023.
Eventually it's been taped out and if we can get that wrong. It can help us we did get some other design wins on on the <unk> product line, albeit they'll take time to ramp and there may be not as big as those ones, but we are making progress even without the sideline, but five on makes a big difference for us because it's the standard.
Memory control that we're looking for.
He says you mentioned.
Sometime in 'twenty, three and is expected to rollout you mentioned a quarter data interim.
<unk> alright.
Alright.
Q2 from what I heard it's supposed to be Q2.
They call. It Q2 ish of 2022, sorry, I didn't mean to say 2020.
Yes.
Yes. The next six months supposedly it's in production and that will help us because then we have our silicon, but they don't have their silicon. So once they can sample. They are sampling today from what I hear so hopefully we can get some momentum going on that.
Got it that's it for me Thanks, Alright, Thanks, Dennis Thank you.
Your next question comes from the line of John Fitch Cohen from Dialectic capital. Your line is open.
Yeah, Hey, guys.
Great work and thanks for taking my question.
A couple one is could you talk a little bit about the IP monetization what are you giving up.
What IP are you selling off and kind of what does it validate I don't know just a little bit about that and then I've got a couple of others.
So our strategy, we have two different strategies actually we have three now after this one so first strategy with like Hey, Let's go license our technology that people want to utilize it and we continue to do that we've done that in multiple cases. The Rad hard is the exact case of that where it's multiple things that we do really good business for us we give away nothing because they are building.
<unk> products for specific markets that we don't even plan. So that's great and we're going to continue that the second piece of this thing is protecting our IP, where we go out and we essentially people have to license our technology, because they're either violating it are using our technology and they may not know it right. So that's one area and we do a lot of protection on that.
There is also another element where theres pieces that we have a lot of patents and we have a lot of IP that we don't necessarily use anymore with the direction that we're heading and so as we find the people that we're having discussions with about valuable assets, we have those discussions and in some cases they result in IP monetization.
What youre, saying.
So youre not really giving away anything you or this is kind of extra value youre not selling your patent portfolio to capture 4 million bucks or whatever it is that's correct youre basically.
What's the maintenance fee with all this do I really need that is that my long term roadmap because we have a ton of patents and this is no different than almost any other company right is once you pick it up or keeping direction you like yeah, we don't need that and is it right yeah.
That's simple.
So could you.
It.
Sounds like there was there has been a buildup over COVID-19 and some of that was released into this period.
And yet at the same time, you've got a whole lot of new customers Theres, a little bit of a product validation here product acceptance I think more so is the right word and so I can't tell whether you have better visibility into the future or worse and I don't know whether thats a better question for the very near term or the medium term and the long term.
But I'd love your.
Thoughts on what we're seeing here of release of pent up demand relative to visibility going forward.
Yeah, there's a couple of questions in there, but let me try to answer.
On one side of it I think that we didn't have enough design wins to three years ago on our base business until we put a deliberate focus on that so you're starting to see just a normal like momentum sides, where new customers coming in during COVID-19. They are releasing products as products are successful, we're getting demand off of that.
That's what you would expect right and we just we kept a throttle on the design win for the toggle just for that reason.
On the other hand in Q1 and Q2.
There was a lot of supply constraints and different issues within the supply chain that was difficult for us to overcome because remember everyone have this giant push.
Gives me in Q2, where I think it all just happened at one time and then its stuff started freeing up you started seeing us be able to to meet the demand in Q2, we had a higher demand than we could have service because of the constraints Q3, we got some of the supply back from Q2, which helped US Q4, we have enough supply to be able to deal we're still leaving probably.
$3 million to $5 million for the year on the table.
Even with all of these results there is still our demand is higher than our supply and when people order today, it's like Q1, Q2, and when we can supply.
That's great so.
So you have good visibility and does that extend on a longer term basis like in other words is the base for this product are we finally at this inflection point, where this is now a growth market and you've got kind of I don't want to say unlimited, but a lot of.
Additional growth going forward that you can just see through execution.
Well you can see it through the customers right because if you look at the customer names, who we're shipping to today, it's a different base. That's a bigger based on what you had before and if you remember probably three years ago, we lost like two or three big customers that hurt us because people raise prices did a bunch of stuff and in this case, we're not we just these people are all it's like <unk>.
<unk> bye.
<unk> hundred is what your revenue looks like which have a lot less risky the big challenge that I'm looking at just as the CEO and Youre looking forward you're like Okay. We have a really strong backlog you get backlog, that's like almost 100% in the first one or two quarters. How long is that last and is that also an artifact of other constraints because our <unk>.
Product may not be the most expensive product in these things. So there is always a concern is this hold I can tell you. This we don't really care at this point because we're so hand to mouth and we our inventory levels are so low that we need to replenish that anyway. So there's a little bit of buffer in that just because you've got to build.
All of this product anyway, just to get our inventory levels through distribution correct and we don't have them correct. Today, just like everyone else are blood down and they are pretty low so.
Great that's great.
Last question and then ill drop off which is the nor opportunity you you mentioned in response to another question kind of your science around Nord I'd Love your thoughts around that opportunity. How additional is it how big is it how immediate is it just any thoughts on there would be great and thank you. So so.
So back in my past I used to run the North Division for Intel and I was the one that shut it down because there is no technology advancement over time, and you haven't seen that for four or five years and so the theory that we have is that not only can we displace S ramps, but we can also put these really rugged devices with real high retention because remember we were designing for.
Infinite endurance with SRAM, you don't need that for Nord and if you look back on 65 nanometer the retention data all of the Nord devices is not as good as people say and it's all built on error correction block management different things. So there's a lot of software they need software. It simplifies the design of repo that want rugged devices that can outperform.
What's out there today they'll choose this now I don't know what how big this market is today and how big the nor market is.
We're going to have to find out as we move through it and it's not the only thing we're putting this product that remember, it's a traditional SRAM market, but we do have the opportunity to go test this to other markets.
Same product.
It's both interfaces.
And it hasnt or.
That's great. Thank you so much.
Yep.
Once again to ask a question. Please press Star then the number one on your telephone keypad again Thats Star then the number one on your telephone keypad.
I have another question from the line of Richard Shannon from Craig Hallum. Your line is open.
Great. Thanks for taking the last couple of questions here Darren.
Following up on the topic of SSD controllers, you mentioned size on how about any other partners or potential partners, you've talked about him whether theres been any progress and visibility into getting other other guys doing MRM based SSD controllers.
Yes.
Not not a lot of other people doing it from what I know is on is the biggest one but there also are the biggest supplier. So that's good I think the better thing is that at our largest customer we've gotten quite a few more design wins, which is which is helpful. For US right. Because then it kind of extends the life of what we're doing and hopefully it'll grow it through time.
Yes, we're kind of in a wait mode until we can get that controller out because that standardizes our product right now it's hard because a lot of people are using FPGA, some different things to interface with it.
Right Okay.
Last question here is on on supply constraints I know this is crystal ball sort of stuff here, but how long do you think the issues are going to be.
At hand here, both for you specifically and for your customers any any sense of what youre hearing out there.
Haven't heard anything, but if I just go back to more of a not Moore's law, but the cyclical nature of supply and demand it should be over sometime in 2023, I think you'll have people say something of that nature, but if you look at the constraint has been going on now for almost a year and a half.
From what I can tell maybe longer so it's like one of those things I remember that when I ran the flashes and for Intel I could predict it to the day.
Because we put it on a new factory everyone else put in a new factory here is all the volume and then you all sudden supply was bigger than demand and then you wait and then it all caught up and then it got constrained and prices went up and then you've added more factories and so about every two and a half years and flipped I don't know if COVID-19 has changed that but if it follows a logical thing it'll in 2023.
Some time.
Okay. Most people like you are calling for some time next year and do you think is going to be longer than that then.
Oh, Im sorry, 2022, sorry, I didn't mean to say.
2020 can stockholders, yes, 2023, sorry.
Okay.
Alright that wrong again.
I think last night.
Turning to sorry.
Yes.
I heard that loud and clear thanks for clarifying and that's all for me Darren Thank you.
Thanks Richard.
Once again to ask a question. Please press Star then the number one on your telephone keypad that again Thats Star then the number one on your telephone keypad.
Okay.
There are no further questions at this time I would now like to turn the conference over back to Mr. <unk> catheter Wow.
Okay with that we conclude today's call. Thank you all for joining us and we look forward to reporting our progress and results in the next quarters call. Operator, you may now disconnect the call.
Yeah.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation and have a wonderful day you may all disconnect presenters. Please stay online for post conference.
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