Q1 2024 Everspin Technologies Inc Earnings Call
Good day.
Operator: And thank you for standing by. Welcome to the conference call to discuss Everspin Technology's first quarter 2024 financial results. At this time, all participants are in a listen-only mode. At the conclusion of today's conference, call instructions will be provided for question and answer. As a reminder, this conference is being recorded. I would now like to turn the conference over to Cassidy Fuller, Investor Relations, Everspin. Please begin.
Speaker Change: And thank you for standing by and welcome to the conference call to discuss ever spend Technologies' first quarter 2024 financial results. At this time all participants are in a listen only mode.
Speaker Change: After today's conference call instructions will be provided for question and answers.
Speaker Change: As a reminder, this conference is being recorded I would now like to turn the conference over to Cassidy Fuller Investor relations of ever spin. Please begin.
Cassidy Fuller: Thank you, Operator, and good afternoon, everyone. Everspin released results for the first quarter 2024 and in March 31, 2024, this afternoon after the market closed. I'm Cassidy Fuller, Investor Relations for Everspin, and with me on today's call are Sanjeev Aggarwal, President and Chief Executive Officer, and Anuj Aggarwal, Chief Financial Officer. Before we begin the call, I would like to remind you that this conference call contains forward looking statements regarding future events, including but not limited to the company's expectations for Everspin's future business, financial performance and goals. Customer and Industry Adoption of MRAM Technology, Successfully Bringing to Market and Manufacturing Products in Everspin's Design Pipeline and Executing on its Business Plan.
Cassidy Fuller: Thank you operator, and good afternoon, everyone.
Cassidy Fuller: <unk> released results for the first quarter 2024, and at March 31, 2024. This afternoon after market close.
Cassidy Fuller: These 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 statement. We would encourage you to review the company's SEC filings, including the annual report on Form 10-K and other SEC filings made from time to time, in which the company may discuss risk factors associated with investing in Everspin. All forward-looking statements are made after the date of this call, and, except as required by law, the company undertakes no obligation to update or alter any forward-looking statements made on this call, whether as a result of new information, future events, or otherwise.
Cassidy Fuller: Chassis filler investor relations for ever spend and with me on today's call are Sanjiv argued wall, President and Chief Executive Officer.
Sanjeev Aggarwal: And unused argue well chief financial Officer.
Cassidy Fuller: The financial results discussed today reflect the company's preliminary estimates and are based on the information available as of the date hereof and are subject to further review by Everspin and its external auditors. The company's actual results may differ materially from these estimates as a result of the completion of financial closing procedures, final adjustments, and other developments arising between now and the time that the financial results for this period are finalized. Additionally, 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.
Sanjeev Aggarwal: Before we begin the call I would like to remind you that this conference call contains forward looking statements regarding future events, including but not limited to the company's expectations for ever since future business financial performance and goals.
Cassidy Fuller: Included in the company's press release are definitions and reconciliations of GAAP net income to adjust to EBITDA, which provide additional details. A copy of the press release is posted on the Investor Relations section of Everspin's website at www.everspin.com. Now, I'd like to turn the call over to Everspin's President and CEO, Sanjeev Aggarwal. Sanjeev, please go ahead.
Sanjeev Aggarwal: Thank you, Cassidy, and thanks, everyone, for joining us on the call today. During the first quarter, we delivered revenue of $14.4 million, at the high end of our guidance range of $13.5 million to $14.5 million. We delivered a growth margin of 56.5% in the first quarter compared to 56.8% in Q1 2023. We ended the year with a cash balance of $34.8 million.
Sanjeev Aggarwal: We are pleased by the progress we have made over the past few years with our toggle MRAM solution, and as we continue to ramp up our lower density products, we will have increased visibility for our STD MRAM solution. Looking ahead, we expect to see flattish product revenue in the second quarter compared to Q1 due to continued weakness in Asia-Pacific and in industrial, consumer, and auto end markets. However, we expect a ramp in our toggle and STDM ramp design wins in the second half of 2024.
Sanjeev Aggarwal: Customer and industry adoption of M Ram technology.
Sanjeev Aggarwal: Definitely bringing to market and manufacturing products and ever since design pipeline and executing on its business plan.
Sanjeev Aggarwal: These 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.
Sanjeev Aggarwal: We would encourage you to review the company's SEC filings, including the annual report on Form 10-K, and other SEC filings made from time to time.
Sanjeev Aggarwal: And which the company may discuss risk factors associated with investing in <unk>.
Sanjeev Aggarwal: All forward looking statements are made after the date of this call and except as required by law. The company undertakes no obligation to update or alter any forward looking statements made on this call whether as a result of new information future events or otherwise.
Sanjeev Aggarwal: Financial results discussed today reflect the company's preliminary estimates and based on the information available as of the date hereof and are subject to further review by ever spin and its external auditors.
Sanjeev Aggarwal: The company's actual results may differ materially from these estimates as a result of the completion of financial closing procedures final adjustments and other developments arising between now and the time that the financial results for this period are finalized.
Sanjeev Aggarwal: 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.
Sanjeev Aggarwal: Included in the Companys press release are definitions and reconciliation of GAAP net income to adjusted EBITDA, which provide additional details.
Speaker Change: A copy of the press release is posted on the Investor Relations section of Aspen's website at Www dot ever spend dot com and now I'd like to turn the call over to <unk>, President and CEO Sanjiv Arghool Sanjeev. Please go ahead.
Sanjeev Aggarwal: Our Persist Industrial SCTM-RAM product line has demonstrated consistent strength as it has continued to gain momentum in terms of design value. We continue to expect to begin translating these design wins into revenue starting in the second half of 2024. Turning now to our radiation heart programs that we outlined last quarter. As we noted on previous calls, we are engaged in two radiation heart programs using our STTM-RAM technology. The first is related to an ad hoc 64 megabit STTM-RAM project.
Sanjeev Aggarwal: And the second aims at building a strategic radiation hardened FPGA. We expect to continue recognizing revenue from the 64 megabit STD-MRAM project over the coming quarter. We successfully executed the deliverables for the strategic radiation hard and FPGA project in Q1. We expect this project to continue in 2024 with additional funding from the sponsors in the coming months and quarters. During the quarter, we also signed an extension of a toggle MRAM reliability project for radiation hard applications that we originally executed in the third quarter of 2023.
Speaker Change: Thank you destiny and thanks, everyone for joining us on the call today.
Speaker Change: During the first quarter, we delivered revenue of $14 4 million at the high end of our guidance range of $13 5 million to $14 $5 million.
Speaker Change: We delivered gross margin of 56, 5% in the first quarter compared to 56, 8% in Q1 2023.
Speaker Change: We ended the year with a cash balance of $34 8 million.
Speaker Change: We are pleased by the progress we have made over the past few years with our <unk> solution and as we continue to ramp up our lower density products, you will have increased visibility for our SPD <unk> solutions.
Speaker Change: Looking ahead, we expect to see flattish product revenue in the second quarter compared to Q1 due to continued weakness in Asia Pacific and in industrial consumer and auto end markets.
Speaker Change: However, we expect the ramp in our Tahoe unnecessarily Amram design wins in the second half of 2024.
Speaker Change: Our persistent industrial let's say the MRM product line has demonstrated consistent strength as it has continued to gain momentum in terms of design wins.
Speaker Change: We continue to expect to begin translating these design wins into revenue starting in the second half of 2024.
Speaker Change: Turning now to our aviation heart programs that we outlined last quarter.
Speaker Change: As we noted on our previous calls we are engaged in to radiation hard programs using our SPD <unk> technology.
Speaker Change: First related to an AD hoc 64, megabit <unk> Amazon project and the second aimed at building a strategic radiation hardened FPGA.
Speaker Change: We expect to continue recognizing revenue from the 64 megabit SDM Ram project over the coming quarters. Please.
Speaker Change: We successfully executed the deliverables for the strategic radiation hardened FPGA project in Q1.
Speaker Change: We expect this project to continue in 2024 with additional funding from the sponsors in the coming months and quarters.
Speaker Change: During the quarter. We also signed an extension of a novel Amiram reliability project or <unk>.
Speaker Change: The Asian Hot applications that we have.
Speaker Change: Originally executed in the third quarter of 2023.
Sanjeev Aggarwal: As you may have seen, we recently announced that IBM selected our Persist 1 gigabit STDM RAM solution for use in their new flash core module, the FCM4. This DDR4-like high-performance persistent memory ensures critical data integrity, even during power loss. This reinforces the deployment of STDM RAM in data center storage applications.
Speaker Change: As you May have seen we recently announced that IBM selected our persist one gigabit <unk> solution for use in their new flash core module the Fcs for.
Speaker Change: This DDR for like high performance persistent memory and show us critical data integrity, even during power loss.
Speaker Change: This reinforces deployment of CDM Ram and data center storage applications.
Sanjeev Aggarwal: Lastly, we recently submitted our application for the CHIPS and Science Act. While we do not know the exact timing for a decision, we remain optimistic that we will receive funding which we plan to use for additional 200 millimeter toggle and STDM RAM capacity and improved capability. There are other grant opportunities that we are pursuing, and we hope to be able to share additional details as we move through the year. Now, turning to our outlook for 2024.
Speaker Change: Lastly, we recently submitted our application for the chips and Science Act, while we do not know the exact timing for a decision. We remain optimistic that we will receive funding, which we plan to use for additional 200 millimeter, Togo and SPT amram capacity and improved capabilities.
Speaker Change: There are other grant opportunities that we are pursuing and hope to be able to share additional details as we move through the year.
Speaker Change: Turning to our outlook for 2024, as we mentioned last quarter, we expect the year to be weighted more heavily towards the second half as we continue to experience a slower start to the year.
Sanjeev Aggarwal: As we mentioned last quarter, we expect the year to be weighted more heavily toward the second half as we continue to experience a slower start to the year. This lower growth can be attributed to continued economic weakness in Asia Pacific, as well as higher interest rates, which have driven customers to focus on lean inventory practices, along with shifting project schedules for some government contracts.
Speaker Change: This loss can be attributed to continued economic weakness in Asia Pacific as well as higher interest rates, which have driven customers to focus on lean inventory practices, along with shifting project schedules for some government contracts.
Anuj Aggarwal: Despite these near-term challenges, we expect to bring in revenue from our new STDM RAM design wins, a stabilization in customer and distributor inventories, and a gradual improvement in the Asia-Pacific region. Moreover, we are encouraged by our recent traction. We attended Embedded World in Nuremberg a few weeks ago, where we introduced the Persist brand and had a full schedule of meetings with existing and potential distributors and customers. He came away from the show with significantly more leads than at last year's event. I will now turn it over to our CFO, Anuj Aggarwal, who will take you through our first quarter financials and second quarter 2024 guidance.
Speaker Change: Despite these near term challenges, we expect to begin recognizing revenue from our new <unk> design wins.
Speaker Change: Realizations and customer and distributor inventories and a gradual improvement in the Asia Pacific region.
Speaker Change: Moreover, we are encouraged by our recent traction.
Speaker Change: The tender at embedded world in Nuremberg, a few weeks ago, where we introduced the persist brand and had a full schedule a meeting with existing and potential distributors and customers.
Speaker Change: Came away from the show we had significantly more leads than at last year's event.
Speaker Change: I will now turn it over to our CFO <unk>, who will take you through our first quarter financials and second quarter of 2020 for guidance.
Anuj Aggarwal: Thank you, Sanjeev, and good afternoon, everyone. We delivered solid quarterly results near the high end of our guidance range of $13.5 million to $14.5 million, with revenue of $14.4 million compared to $14.8 million in the first quarter of 2023. MRAM product sales in the first quarter, which includes both TOGGL and SDT MRAM revenue, were $10.9 million, compared to $13.8 million in Q1 2023. Licensing, royalty, patent, and other revenue in the first quarter increased to $3.6 million, compared to $1.1 million in Q1 2023. Shipments to suppliers for our high-density SDT product for data center applications represented 20% of revenue in the first quarter, versus 11% of revenue in Q1 2023.
Speaker Change: <unk>.
CFO: Thank you Sandeep and good afternoon, everyone. We delivered solid quarterly results near the high end of that.
CFO: Our guidance range of $13 5 million to $14 $5 million with revenue of $14 4 million compared to $14 8 million in the first quarter of 2023 MRM product sales in the first quarter, which includes both cargo and STP MRM revenue.
CFO: $10 9 million compared to $13 8 million in Q1, 2023 licensing royalty patent and other revenue in the first quarter increased to $3 6 million compared to $1 1 million in Q1 2023 shipments to suppliers for her.
CFO: High density <unk> product for data center applications represented 20% of revenue in the first quarter versus 11% of revenue in Q1 2023.
Anuj Aggarwal: Turning to gross margin, our GAAP gross margin was relatively flat to Q1 2023 at 56.5%. GAAP operating expenses for the first quarter of 2024 were $8.8 million compared to $7.7 million in the first quarter of 2023. This drove our first quarter results to a small loss of $0.2 million or a loss of $0.01 per diluted share based on 21.3 million weighted average fully diluted shares outstanding. This compares to net income of $0.8 million or $0.04 per diluted share in the first quarter of 2023. Adjusted EBITDA was $1.9 million compared to $2.3 million in Q1 2023. Our balance sheet remains strong and debt-free.
CFO: Turning to gross margin our GAAP gross margin was relatively flat to Q1 2023 at 56, 5% GAAP operating expenses for the first quarter of 2024 were $8 8 million compared to $7 7 million in the first quarter 2023.
CFO: This drove our first quarter results to a small loss of <unk> 2 million or a loss of one cents per diluted share based on $21 3 million weighted average fully diluted shares outstanding. This compares to net income.
CFO: $8 million or <unk> <unk> per diluted share in the first quarter of 2023, adjusted EBITDA was $1 9 million compared to $2 3 million in Q1 2023, our balance sheet remains strong and debt free and we ended the quarter with cash and cash equivalents of $34 8 million.
Anuj Aggarwal: We ended the quarter with cash and cash equivalents of $34.8 million, down from $36.9 million at the end of the prior quarter. The decrease in cash quarter over quarter is attributed to investments in equipment for new products and operating facilities to ensure readiness for the anticipated second half ramp. Cash flow used in operations was $1.3 million for the first quarter.
CFO: Down from $36 9 million at the end of the prior quarter. The decrease in cash quarter over quarter is attributed to investments in equipment for new products and operating facilities to ensure readiness for the anticipated second half ramp cash flow used in operations was $1 3 million for the first quarter.
CFO: Turning to guidance, we mentioned on our last quarter's call that we anticipate revenue for the first half of 2024 to be lower than our typical seasonality. This has proven true for our first quarter and we expect our second quarter to be down from the first quarter, reflecting flattish total revenue.
Anuj Aggarwal: Turning to guidance, we mentioned on our last quarter's call that we anticipate revenue for the first half of 2024 to be lower than our typical seasonality. This has proven true for our first quarter, and we expect our second quarter to be down from the first quarter, reflecting flattish toggle revenue and lower RADHRD revenue that Sanjeev mentioned in his remarks. Taking these factors into consideration, we expect Q2 total revenue in the range of $10 million to $11 million and gap net loss per diluted share to be between negative $0.14 and negative $0.09.
CFO: Lower Rad hard revenue that Sanjiv mentioned in his remarks, taking these factors into consideration. We expect Q2 total revenue in the range of 10 million to $11 million and GAAP net loss per diluted share to be between negative <unk> 14.
Anuj Aggarwal: We are optimistic about the second half of 2024 as we begin to recognize revenue from our design wins for our STT-MRAM product. In summary, we remain confident in our ability to scale the business and convert design wins to revenue. We have already observed increased traction with our design wins and are seeing particular strength from the industrial and aerospace markets. As the industry navigates some near-term challenges, we remain focused on growing our toggle MRAM and DRAM products and recognizing revenue for our STT MRAM technology. Operator, you may now open the line for questions.
CFO: And negative line.
CFO: We are optimistic for the second half of 2024 as we begin to recognize revenue from our design wins for our <unk> products.
CFO: In summary, we remain confident in our ability to scale the business and convert design wins to revenue. We have already observed increased traction with our design wins and are seeing particular strength from industrial and aerospace end markets as the industry navigate some near term challenges we remain focused.
CFO: Growing our toggle MRM and DRAM products and recognizing revenue for our <unk> technology.
Speaker Change: Operator, you May now open the line for questions.
Operator: As a reminder, to ask a question, you'll need to press star 11 on your telephone. To withdraw your question, please press star 11 again.
Speaker Change: Thank you.
Speaker Change: As a reminder to ask a question you will need to press star one on your telephone to withdraw your question. Please press star one again, please wait for your name to be announced.
Operator: Please wait for your name to be announced. We ask that you please limit your questions to one and one follow-up. Please stand by while we compile the Q&A roster. One moment for our first question, please. Our first question will come from the line of Quinn Bolton with Needham. Your line is now open. Hey guys.
Speaker Change: We ask that you please limit your questions to one and one follow up.
Speaker Change: Please standby, while we compile the Q&A roster.
Speaker Change: One moment for your first question. Please.
Speaker Change: Our.
Speaker Change: First question will come from the line of Quinn Bolton with Needham. Your line is now open.
Nicolas Emilio Doyle: Hey guys, Nick Doyle for Quinn. Thanks for taking our questions. A couple of housekeeping ones first.
Quinn Bolton: Hey, guys, Nick Doyle on for claims.
Nicolas Emilio Doyle: Thanks for taking my questions a couple of housekeeping ones first.
Nicolas Emilio Doyle: For the first quarter product revenue was down as expected, but did the high density STG did that increase quarter over quarter.
Outage: Hey, Nick this is outage.
Nicolas Emilio Doyle: For the first quarter, product revenue is down as expected, but did the high density STT increase by a quarter of a quarter?
Outage: Great question, so from a from a product perspective, yes.
Anuj Aggarwal: Hi Nick, this is Anuj. Great question. So, from a product perspective, Yeah, we did see some softness and toggle as we've had some challenges with industrial. But from an SDT data center perspective, that product has been pretty healthy. So it was up in Q4, and it was pretty healthy in Q1 as well.
Outage: Yes, we did see some softness in toggle as we've had some challenges with industrial.
Nicolas Emilio Doyle: But from an STD data set a perspective that product has been pretty healthy. So it was up in Q4 and it was pretty healthy in Q1 as well.
Nicolas Emilio Doyle: Great. And then for the OPEX, I mean, what you think of the sharp increase this quarter and do you expect to maintain this higher level? I don't remember if that's related to NREs and not having them this quarter. Just how are you thinking about OPEX?
Speaker Change: Great and then for the Opex I mean, what drove the sharp increase this quarter and do you expect to maintain this higher level.
Speaker Change: I don't remember if that's related to <unk> and not having on this quarter. Just how are you thinking about opex.
Anuj Aggarwal: Yeah, sure. So from an OPEX standpoint, there's a couple of things we had some higher professional services, some stock-based compensation, and depreciation. I think, without giving guidance looking forward, we expect OPEX to be relatively flat to down. So the team's working on reducing spending and making sure we can have that decline.
Speaker Change: Yes, sure so from a from an Opex standpoint, there's a couple of things we had some higher professional services.
Speaker Change: Stock based compensation and depreciation I think without giving guidance looking forward, we expect opex to be relatively flat to down so the team's working on reducing spending and making sure. We can have that decline.
Nicolas Emilio Doyle: Okay, and then for the 2Q guide, I mean, the guide missed our estimate by about 3 million. Can you just speak to what drove the miss?
Speaker Change: Okay.
Speaker Change: And then for the <unk> guide.
Speaker Change: The guide missed our estimate by about 3 million can you just speak to what drove the Miss.
Speaker Change: Reading through the lines.
Anuj Aggarwal: I mean, reading through the lines, it just seems like toggles are just a little bit worse, so products are expected to decline next quarter. And then you mentioned Rathard's going down, you know, before it goes up. So I'm in that same vein, you know, margins should probably decline as licensing goes down as well. Just any more color on the guard.
Speaker Change: Things like toggles.
Speaker Change: As just a little bit worse, so that products are expected to decline next quarter and then you mentioned the Rad hard going down before it goes up so.
Speaker Change: In that same vein margin should probably decline as licensing goes down as well.
Speaker Change: Just any more color on the guide.
Anuj Aggarwal: Yeah, no, I think you're hitting it as well. I think from a Q2 guidance perspective, if I take a step back, from a product revenue perspective, we expect things to be relatively flat. So as you mentioned, toggle is flat to slightly down, SDT, and data center that's going pretty healthy, and we expect it to be relatively flat. But then from a RADHeart perspective, as you might recall from some of the previous calls, we've been able to close and complete several RADHeart projects.
Speaker Change: Yes, I think.
Speaker Change: I think youre hitting it as well I think from our Q2 guidance perspective, if I take a step back from a product revenue perspective, we expect things to be relatively flat. So as you mentioned.
Anuj Aggarwal: And we're currently in the works on a couple of additional new Red Heart projects. So the guide you're seeing today doesn't include any Red Heart revenues since we haven't signed any yet. And so really, the decline there is you're seeing the rat hard revenue not being incorporated into Qt.
Speaker Change: Toggle it.
Speaker Change: As flat to slightly down SVT data center, that's going pretty healthy and we expect it to be relatively flat.
Speaker Change: But then from a Rad hard perspective, as you might recall from some of the previous calls we've been able to close and complete out several rad hard projects and we're currently in the works.
Speaker Change: On a couple of additional new Rad hard projects. So the guide you're seeing today that doesn't include any Rad hard revenue since we haven't signed anything yet.
Speaker Change: And so really the decline there is youre seeing the Rad hard revenue not being incorporated into Q2.
Nicolas Emilio Doyle: Okay, and then last question, I'll jump back in. Just what gives you confidence about the second half ramp? Maybe how much, maybe you can give a percent or absolute dollar range, how much of the growth in the back half is coming from the Red Heart Bank?
Speaker Change: Okay.
Speaker Change: And then last question I'll jump back in just what gives you confidence on the second half ramp maybe.
Speaker Change: How much more you can get a percent or absolute dollar range, how much of the growth in the back half is coming from the Rad hard.
Anuj Aggarwal: Yeah, so I want to be careful because we don't necessarily give guidance for the full year. But I will say, you know, we're seeing the same macroeconomic challenges everyone else is. So, you know, talking about things before the working capital, we continue to see there's some pressure there from Disney as a result of reduced inventory. From a Japan and China perspective, the yen versus dollar impact and seeing that products are a little bit more costly. Right because the yen is depreciating.
Speaker Change: Yes, I want to be careful because we don't necessarily give guidance for the full year.
Speaker Change: But I will say, we're seeing the same macroeconomic challenges everyone else's, so talking about things before the.
Speaker Change: Working capital, we continue to see Theres, some pressure there from <unk> as a reducing inventory.
Speaker Change: From Japan, China perspective, the yen versus dollar impact.
Speaker Change: Seeing that products are a little bit more costly right because the yen has depreciated and then we're seeing ordering kind of going back to the lead times. So from a macro perspective, I think that's still true I think what I would say is we deep dive into our business. There is a couple of things.
Anuj Aggarwal: And then we're seeing ordering kind of going back to lead times. So from a macro perspective, I think that's still true. I think what I would say, as we deep dive into our business, there are a couple of things that give us some confidence in the second half. So if we look at the SDT data center, for example, the bookings that we see so far in 2024 look to exceed 2023. And our new SDT low-density product that's also ramping, and we're continuing to see design work.
Speaker Change: <unk>.
Speaker Change: Give us confidence in the second half. So if we look at the STR data Center for example, the bookings that we see so far in 2024 look to exceed 2023.
Speaker Change: And our new Usdt low density product, that's also ramping and we're continuing to see design wins.
Anuj Aggarwal: In addition to that, from a licensing perspective, there are several projects that are being worked on. They haven't been signed yet, but there are multiple things in the hopper. So we expect to sign a few of those in the second half of the year. So that gives us confidence as we look to the full.
Speaker Change: In addition to that.
Speaker Change: From a licensing perspective, there are several projects that are being worked they havent been signed yet but there is multiple things in the hopper. So we expect to sign a few of those in the second half of the year. So that's what gives us.
Speaker Change: Confidence as we look to the full year.
Speaker Change: Thanks.
Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Richard Shannon from Craig Hallam Capital. Your line is now open.
Speaker Change: Thank you one moment for our next question. Please.
Speaker Change: Our next question comes from the line of Richard Shannon from Craig Hallum Capital. Your line is now open.
Richard Cutts Shannon: Well, hi guys, thanks for taking my questions. Maybe I'll follow up on the topic here of Brad Hard.
Richard Cutts Shannon: Hi, guys. Thanks for taking my questions, maybe a follow up on the topic of Brad hard seems like.
Richard Cutts Shannon: It seems like a particular project here seems to be the reason for the sequential decline here as your products seem to be kind of mostly flat sequentially. Is there like a pause in the project here? Is there a question as to whether it will continue? Because I think your partners talked about a program, assuming all the options are picked up to something that lasts on the order and we've got at least two years left to go. So just want to get some sense of the visibility of that project and whether this is just a lull between the kind of sub-programs within the bigger picture.
Richard Cutts Shannon: This particular project here seems to be the reason for the sequential decline here as youre products you'd be kind of mostly flat sequentially.
Richard Cutts Shannon: Is there like a pause in the project here or is there a question as to whether it will continue because I think your partners talked about a program assuming all the options are picked up with something that last in the order of four years and we've got these two years left to go. So just wanted to get some sense of the visibility in that project and whether this is just a lull between.
Speaker Change: Got it.
Speaker Change: Sub sub programs within the bigger picture.
Sanjeev Aggarwal: Yeah, hi Richard, Sanjeev. Thanks for the question. Yeah, you're right.
Speaker Change: Yes, Hi, Richard Thanks for the question.
Sanjeev Aggarwal: I think we expect the project that we are working on the strategic radiation RNA FPGA project with our partner. We expect that to get renewed sometime in the next coming months and quarters. The reason for the delay is that there has been some delay from the US government funding agency in continuing the project because of some changes in the schedule on their side. The project is, like we said, we met all our deliverables in Q1.
Speaker Change: Right.
Speaker Change: Thank you.
Speaker Change: We expect the projects that we're working on the strategic radiation tolerant FPGA project.
Speaker Change: With our partner.
Speaker Change: <unk>.
Speaker Change: We expect that to get renewed sometime in the next coming months and quarter.
Speaker Change: The reason for the delay is there has been some delay from the U S government funding agency.
Speaker Change: Continuing the project because of some changes in the schedule on their site the.
Speaker Change: The project is like we said we met all our deliverables in Q1.
Sanjeev Aggarwal: So we fully expect to get that project going sometime in Q2 or as soon as the funding comes. Also, Richard, I would like to point out that we did talk about a new ToggleMRAM reliability project that we assigned in Q2. We just don't have all the details yet, so we haven't included that in our guidance for Q2 as well.
Speaker Change: So we fully expect to get that project going sometime.
Speaker Change: Sometime in Q2 or as soon as the funding comes through also.
Speaker Change: So Richard I would like to point out that we did talk about.
Speaker Change: You target reliability.
Speaker Change: The project that we assigned.
Speaker Change: In Q2.
Speaker Change: We just don't have all the details yet so we haven't included that in our guidance for Q2 as well.
Richard Cutts Shannon: Well, I guess I'll follow up on that last part of your comment, Sanjeev. Sounds very interesting. How do we think about this in the scale of the other toggle reliability projects? And what's the source? Is there another US or other government agency or what's the, what's the source of that one?
Speaker Change: Okay.
Speaker Change: Well I guess I'll follow up on that last part of your comment Sanjay It sounds very interesting how do we think about this in the scale of the other toggle reliability project and what's the source there is another.
Speaker Change: The us or other government agency or what's the.
Speaker Change: What's the source of that one.
Sanjeev Aggarwal: So that's basically a follow-up from the same agency that we did a project with them in 2023. They had some follow-up questions on the reliability models that we shared, so we are actually collecting some more data to bring them up to speed on that. In terms of scale, it won't be as big as it was in 23. But we don't have the financial figures yet to disclose.
Sanjay: So that's basically a follow up from the same agency that we did a project with them in 2023.
Sanjay: Had some follow up questions on the reliability models that we shared so we're actually collecting some more data to bring them up to speed on that one so the in terms of scale it won't be as big as it was in 'twenty three but.
Sanjay: But we don't have the financial figures yet to disclose.
Richard Cutts Shannon: Okay, fair enough. Let me hit on a couple of financial questions for those. Let's see, let's hit on product gross margins here after some pretty good numbers last year. The last two quarters have been fairly, you know, a significant amount lower, I think, in the 40, you know, high 40s percent range here. Last quarter, you talked about it being something related to yield. I'm wondering if that's still continuing, and if so, is there any visibility in getting that back up to prior levels? And then also, is there any dynamic in the mix here, particularly as there seems to have been a little bit of a shift between Toggle and SCT in your mix here over the last year?
Speaker Change: Okay Fair enough, let me hit a couple of financial questions.
Speaker Change: Let's hear listen on product gross margins here after some pretty good numbers last year last two quarters have been fairly significant amount lower I think than the 40 high 40% range here last quarter, you talked about it being something related to yield I'm wondering.
Speaker Change: If that's still continuing.
Speaker Change: Any visibility on getting that back up to prior levels. And then also is there any dynamic of mix here, particularly as there seems to be a little bit of shift between <unk> and SCG and your mix of your last few quarters.
Anuj Aggarwal: Yeah, hi Richard. Great question.
Speaker Change: Yes, Hi, Richard Great question, Yes from a from a gross margin perspective.
Anuj Aggarwal: Yeah, from a gross margin perspective. Gross margin, you know, again, without giving guidance, has been within our internal model. So, you know, we continue to hold with the low to mid-50s as where we believe gross margin is. If you look at Q1 versus guidance, which I think you're kind of alluding to, the Q1 gross margin was pretty healthy. We did have about $3.3 million in RADHRD revenue that we saw in Q1. And so that's normally higher margins, somewhere between 70% to 90% gross margin. In Q2, like we mentioned, there's no RADHRD revenue that's being incorporated into the guide.
Speaker Change: The gross margin.
Speaker Change: Again without giving guidance has been within our internal model. So we continue to hold with the low to mid fifties as where we believe gross margin is if you look at Q1 versus guidance, which I think youre kind of alluding to at the Q1 gross margin was pretty healthy we did have.
Speaker Change: About $3 3 million and Rad hard.
Speaker Change: Revenue that that we saw in Q1, and so thats normally higher margins somewhere between 70% to 90%.
Speaker Change: Gross margin in Q2 like we mentioned there is no Rad hard revenue that's being incorporated into the guide so really the range there is based on.
Anuj Aggarwal: So really, the range there is based on purely product margin. But from a product margin perspective, you know, the team has done a great job operationally looking at cost reduction projects, being operationally efficient. So we've been able to see a healthy gross margin in the last couple of quarters.
Speaker Change: Purely product margin, but from a product margin perspective, the team has done a great job operationally looking at cost reduction projects being operationally efficient. So we've been able to see a healthy gross margin last couple of quarters.
Richard Cutts Shannon: Okay. Maybe to follow up on this topic, and I guess I'm very curious specifically about product gross margins here. Are we, should we be viewing these levels, you know, that we've seen a number of quarters over the past, look at the model over the last three years, we've seen numbers in the kind of mid-50s range, is that deemed to be abnormally high or the range you aspire to? And then to what degree do we see, you know, as FTT ramps up here, both the high density one and the new low density Or is that going to be a little bit more?
Speaker Change: Okay.
Speaker Change: Maybe to follow up on this topic and I guess I am very curious specifically on product gross margins here.
Speaker Change: Should we be viewing these levels that we've seen a number of quarters over the past, but in the model over the last three years, where you see numbers in the kind of mid <unk> range is that gain to be.
Speaker Change: Abnormally high or the range you aspire to.
Speaker Change: And then to what degree do we see as FCT ramps up here. Both the high density one of the new low density one that seems to be ramping in the second half.
Speaker Change: Is that a level that we can fill expire too or is that going to be a little bit more difficult.
Anuj Aggarwal: I think what we've seen in the past Richard is probably a little bit on the high end; there have been, I think, great efficiencies as the teams looked at improving yields and bringing performance up from an operational standpoint. So I think there's some steady state that you'll see there. It's not like you can get yields to 100 percent, right? So there's going to be some steady state where that kind of tapers off. There is a little bit of flex in terms of the mix.
Speaker Change: I think what we've seen in the past Richard is.
Speaker Change: Probably a little bit on the high end there has been I think.
Speaker Change: Great efficiencies as the teams looked at improving yields and bringing performance up from an operational standpoint. So I think there are some steady state that youll see there. It's not like you can get yields to 100% right. So theres going to be some steady state for that kind of thing.
Speaker Change: <unk> there is a little bit of slack in terms of the mix and so as we look at that there are some challenges there, but if you look at the new low density <unk> product.
Anuj Aggarwal: And so as we look at that, there are some challenges there. But if you look at the new low-density STD product, we're expecting margins to improve from that product. Right now, it's just been introduced, and so we're working through the margin challenges there as you ramp up a new product and get it up to speed and get yields to the levels you need to get them to. But you should see an improvement in the gross margin from that product.
Speaker Change: We're expecting margins to improve from that product right now.
Speaker Change: Just been introduced and so we're working through.
Speaker Change: The margin challenges there as you ramp in new product and get it up to speed and get yields to the levels you need to get them to but you should see.
Speaker Change: Improvement in gross margin from that product.
Speaker Change: Fair enough.
Richard Cutts Shannon: [inaudible] Yeah, my aspiration is still to be in the mid 50s. Okay.
Speaker Change: Thank you, Sir our aspiration is still davita maturities.
Richard Cutts Shannon: Okay, but that's the number you've talked about in terms of total gross margins, not product gross margins, correct? That's right. That's right. Okay, okay, fair enough, then maybe one or two others. You know, I think you said in your press release here something about a foundry agreement here, and I'm not sure if I caught anything and you're prepared to march around that. Can you elaborate on what that is?
Speaker Change: Okay. So that's the number you've talked about in terms of your total gross margin is not product gross margins correct.
Speaker Change: That's correct that's right.
Speaker Change: Okay, Okay fair.
Speaker Change: Fair enough and then maybe one or two others here.
Speaker Change: I think you said in your press release here something about a foundry agreements here and I'm not sure if I caught anything in your prepared remarks, you Brownback can you.
Speaker Change: Elaborate what that is.
Speaker Change: Yes so.
Sanjeev Aggarwal: Yeah, so as you know, we've actually been a foundry for several radiation heart programs and also in the past for an embedded program as well, over the last 15 years or so. So we are, you know, actively acting as a foundry. So this is a new customer that we are bringing online. Right now, we are in the process of setting up their wafers in our fab. And we hope to go into low volume production sometime in the second half of this year, more likely Q4. And the whole idea over here, Richard, is that it's going to lower our, you know, it's going to improve our fab utilization and then lower our, basically, distribute our fixed costs over more products.
Brownback: As you know, we've actually been a foundry for several radiation hard programs and also in the past to an embedded program as well over the last 15 years or so so we are.
Richard Cutts Shannon: Okay, can you elaborate on the product here? Is this a custom product in any way, in any sense of application, and how big can this customer be relative to your, you know, other big customers or your company on a total scale?
Brownback: Actively acting as a foundry. So this is a new customer that we're bringing online. So right now we are in the process of setting up there.
Speaker Change: Their wafers in our fab and we hope to go into.
Speaker Change: Low volume production sometime in the second half of this year more likely Q4 of this year.
Speaker Change: And the whole idea.
Speaker Change: Or is that it's going to lower our.
Speaker Change: Is it going to improve.
Speaker Change: Fab utilization in the lower.
Speaker Change: Basically distribute our <unk>.
Speaker Change: Fixed costs over more product.
Speaker Change: Okay can you elaborate on the products here as is our custom product in any way any sense of application and how big can this customer will be relative to your other big customers or your company's total scale.
Sanjeev Aggarwal: Hopefully, we can talk about this more on the next Earnings Call, Richard, but this is as much as we can disclose at this point. OK.
Speaker Change: Hopefully we can talk about this more at the next earnings call Richard but this is as much as we can disclose at this point.
Richard Cutts Shannon: Okay, that's fair enough then. Maybe just kind of looking at the big picture of your product business here, you know, your guidance here for product revenues being roughly flat is a good sign in the context of what seems like a fairly difficult market for industrial automotive. To what degree do you think we are through any sort of inventory burn issues? We've seen a little bit of burn, I imagine, in the last few quarters as you look at it. Are we largely through that, or do you worry that there's going to be more to come?
Speaker Change: Okay. That's fair enough then.
Speaker Change: Maybe just kind of looking big picture at your product business here.
Richard Cutts Shannon: Your guidance here for product revenues being roughly flat.
Richard Cutts Shannon: Good sign in the context of what seems like a fairly difficult market for industrial and automotive.
Richard Cutts Shannon: To what degree do you think we are we through any sort of inventory burn issues, we've seen seen a little bit of burden I imagine in the last few quarters. As you look at it are we largely through that or do you worry that there's going to be more to come.
Anuj Aggarwal: Yeah, Richard, it's really hard to speculate on where the year is going to be. I think if I think about semiconductors and just being in semiconductor for a long time, typical downturns, you usually see them to be four to five quarters. And from that, we should see some uptake in the second half.
Speaker Change: Yes, Richard it's really hard to speculate on.
Speaker Change: Where the year is going to be I think if I think about semiconductor and just being in semiconductor for a long time typical downturns, you usually see them to be four to five quarters and.
Speaker Change: From that we should see some uptick in the second half.
Anuj Aggarwal: Okay, fair enough. I'll jump on along. Sorry, I didn't mean to interrupt.
Speaker Change: Okay Fair enough I think that's a question I will jump on.
Anuj Aggarwal: No, no, no. Go ahead. Go ahead, Rudy.
Speaker Change: Sorry, I noticed I mean interrupt.
Richard Cutts Shannon: Last question, just a quick question for me, is this on lead times? I think you mentioned companies now ordering inside lead time. Are we at lead times that you were at before COVID on both your toggle and STT products, or is that still coming down to those levels?
Speaker Change: Go ahead go ahead Richard.
Richard Cutts Shannon: Last question just a quick question for me is just on lead times I think you mentioned companies.
Richard Cutts Shannon: Companies and our ordering inside lead time or we have lead times that you were at before before Covid on both your toggle on STD products or is that still coming down to those levels.
Sanjeev Aggarwal: So Richard, we've kept the lead times back to pre-pandemic levels. They're roughly 26 to 27 weeks, depending on which products you're looking at.
Speaker Change: So Richard we've kept the lead time is back to the pre pandemic levels, they're roughly 26 to 27 weeks, depending on which products you are looking at.
Richard Cutts Shannon: OK, then I think that's all the questions for me. I'll jump on the line, guys. Thank you.
Speaker Change: Okay, then I think thats all the questions for me I'll jump out of line guys. Thank you.
Operator: Thank you. Thank you. Thank you. As a reminder to ask a question, you'll need to press star 1-1 and wait for your name to be announced. And our next question, one moment please, comes from the line of Quinn Bolton with Needham. Your line is now open.
Speaker Change: Thank you. Thank you Richard Thank you as a reminder to ask a question you will need to press star one one and wait for your name to be announced.
Speaker Change: Okay.
Speaker Change: And our next question one moment please.
Speaker Change: Comes from the line of Quinn Bolton with Needham. Your line is now open.
Quinn Bolton: Hey guys, I'm just asking if the product The product declined this quarter, and I'm just assuming it's flat next quarter. Was that, was the decline entirely unit-based, or was there any ASP changes there, and then I would just assume both are flat for the next quarter?
Quinn Bolton: Hey, guys.
Quinn Bolton: Just asking if the product.
Quinn Bolton: The product decline this quarter and just assuming it's flat next quarter.
Quinn Bolton: That was the decline entirely unit base or is there any ISP.
Quinn Bolton: Any ASP changes there and then I would just assume both are flat for the next quarter.
Sanjeev Aggarwal: Yeah, Nick, this is Sanjeev. We have not seen any ASP decline. It's mostly the demand or the softness in the Asia Pacific market and the Japan market, which is causing the lower volume. Okay, makes sense.
Angie: Yes, Nick this Angie.
Speaker Change: Have not seen any ASP decline, it's mostly the demand of the softness in the Asia Pacific market in the Japan market, which which is causing the.
Quinn Bolton: Okay, makes sense. And then for the persists persists with IBM, could you, I mean, I know it's early, but could you size that opportunity or give us any hints in terms of timing? So.
Speaker Change: The lower volumes.
Speaker Change: Okay makes sense and then for further persists.
Nicolas Emilio Doyle: With IBM could you I mean, I know, it's early but could you size that opportunity or give us any hints in terms of timing.
Nicolas Emilio Doyle: So.
Sanjeev Aggarwal: You might have seen the press release from us as well as IBM; they actually did launch their FCM4 already. So it's available in the marketplace today. And in terms of our backlog, like Anuj mentioned, it's actually pretty healthy for 2024. It's up and to the right compared to 2023, which is what we like to see. And I think, basically consistent with the data center market, the increase in our backlog is reflective of that.
Speaker Change: You might have seen the press release from us as well as IBM. They actually did launch their SCM four already available in the marketplace today.
Speaker Change: In terms of our backlog like on as you mentioned, it's actually.
Speaker Change: Pretty healthy for 2024.
Speaker Change: Up until the rate compared to 2023, which is what we like to see.
Nicolas Emilio Doyle: I think.
Quinn Bolton: Basically consistent with the data center market.
Quinn Bolton: The increase in our backlog is reflective of that.
Speaker Change: Alright, thank you.
Sanjeev Aggarwal: Thank you. I am currently showing no further questions at this time. I'd like to hand the conference back to Sanjeev Aggarwal for closing remarks.
Quinn Bolton: Sure.
Speaker Change: Thank you.
Speaker Change: I am currently showing no further questions at this time I'd like to hand, the conference back to Sandeep Agarwal for closing remarks.
Sanjeev Aggarwal: I would like to say thank you everyone for joining the call today, and we look forward to speaking to you at our next quarterly earnings report. Thank you again for joining us.
Anuj Aggarwal: I would like to say thank you everyone for joining the call today and we look forward to speaking to you at our next.
Anuj Aggarwal: Earnings report, Thank you again for joining.
Operator: This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
Speaker Change: This concludes today's conference call. Thank you for your participation you may now disconnect everyone have a wonderful day.
Speaker Change: Okay.
Quinn Bolton: Okay.
Quinn Bolton: [music].
Quinn Bolton: Okay.
Quinn Bolton: [music].
Quinn Bolton: Okay.
Quinn Bolton: Okay.
Quinn Bolton: [music].
Quinn Bolton: No.
Quinn Bolton: Yes.