Q3 2024 Everspin Technologies Inc Earnings Call

Arnold is an only mode. At the conclusion of management's prepared remarks, instructions will be provided for the questioning and its recession. As a reminder, this connoissell is being recorded. Now, I'd like to turn the conference over at Cassidy Patterson, Investor Relations, Foreverston.

Thank you, operator and good afternoon everyone. Ever since released results for the third quarter, 2024, ended September 30, 2024 this afternoon after Market Closed.

I'm Cassidy Patterson and Best Relations for Ever Spin. And with me on today's call, Arsanteev Aggarwal, President and Chief Executive Officer, and Matt Tenorio, interim Chief Financial Officer.

Before we begin the call, I'd like to remind you that today's discussion may contain for looking statements regarding future events, including but not limited to the company's expectations for ever since future business, financial performance and goals.

Customer and Industry Adoption of Enram Technology successfully break to market and manufacturing products in ever-fins design pipeline and executing on its business plan.

These four 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 fours of the Constatement.

We would encourage you to review the company's PSAC filings, including the annual report on Form 10K, and other SCC filings made from time to time, and which the company may discuss risk factors associated with investing in efforts then.

All four-dicking statements are made as of the date of this call and, except as required by law, the company undertakes new obligation to update or alter any four-dipping statements made on this call, whether as a result of new information, future events, or otherwise.

The financial risk will reveal to discuss today reflects the company's preliminary estimates. There are based on the information available as of the date here up in our subject to further review by Aberstyn and its external auditors.

The company's actual results made 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 major in this call will include discussion of certain material measures and financial information and gap and non-dap term.

Included in the company's press release are definitions and reconciliation of gap met income to adjustity of the DAW which provide additional details. A copy of the press release is posted on the Industrial Relations section of Everston's website at www.everston.com.

And now I'd like to turn the call over to Everston's President in CEO Sanjeev Aggarwal. Sanjeev, please go ahead.

Thank you, Cassidy, and thanks everyone for joining us on the call today.

We are pleased to report a third quarter results with revenue of 12.1 million in line with our guidance An EPS of Tencent ahead of our guidance range.

Contributing to our results for a number of key events during the quarter.

including the selection of our one gigabit, process STTM RAM for the IBM Flashcore module 4 or FCM 4. And the selection of a process toggle M RAM for the LooseD Gravity SUV.

We ended the quarter with a strong balance sheet including cash of 39.6 million.

Everspin had a number of key advancements and new contracts during the quarter, most notably with frontgrade and a department or defense or DOD contractor that demonstrates the strength of our business and breadth of a product portfolio.

I'll start by discussing products for which we recognize revenue in the quarter before discussing new wins and other projects with future revenue potential.

During the third quarter, we started to receive orders and began to recognize revenue for the sale of a process 1 gigabit STDM RAM into IBM's Flash Core module 4 or FCM 4 for data center applications.

This is the fourth generation of IBM's FCM that has featured ever since 1 gigabit at CTM Rambulation.

Our Persist Solution delivers 2.7 gigabytes per second of both read and write bandwidth coupled with non-volatility and a DDR4-like interface.

We expect to provide parts for this product line for approximately the next two years.

I have been continuing to see modest growth in its product revenue and design events with a stock-alambram purchase products. We observed signs of inventory consumption at our customers and its sequential degrees in our distributor inventory.

We are also pleased to share our continued strong traction with our 4 megabit to 128 megabit, a city M RAM purchase products.

Based on our ongoing customer discussions, we remain optimistic about the adoption of our process, STTM Ram product line, and continue to expect additional design events to go into production later this year with revenue ramping in 2025.

As a reminder, this product family was brought to production last year and is the highest performing persistent memory solution in the industry.

Turning to our licensing, royalty, patent and other revenue.

As I mentioned earlier, we began to recognize initial revenue from the new 9.25 million contract with front great technologies that we announced in August.

Under this contract, we are working with Frontgrade to develop a custom radiation hardened STTM RAM macro for embedded solutions using our process STTM RAM technology.

This deal will support current and future DOD, Strategic Radiation Harden and Low Art Orbital or Leo Space Systems.

Upon successful completion of this first phase of the project, the contract allows for the award of future optional phases.

As we noted on previous calls, we are engaged in two other Radheart programs that use our STTM Ram Technology.

The first program relates to an ad hoc 64-megabird STDM ram project and the second is focused on building a strategic ad hoc FDA

We are pleased to share that both right-hout programs remain on track to move to their respective next phases as we hit our internal third quarter milestones for both programs and recognize revenue.

In addition, we continue to recognize the old revenue from our customers that have licensed our IP in the fields of SDDM RAM and DMR sensors.

Turning to below the line item, during the third quarter, we received 14.6 million award for the next two and a half years from a DOD contractor.

To develop a sustainable plan for our MRA and Manufacturing Facility to provide continuous, on-show RMR and capabilities to their aerospace and defense customers.

He began to recognize the benefits of this award during the third quarter.

This award is being recognized in other income as Matt will explain later in his remarks.

Now I would like to discuss some of the recent awards that we contribute to revenue in future quarters.

Last month we announced that Luzid Motor has selected our Procif Camera for use in its recently released Gravity SUV.

Music selected a product because it beats.

The AECQ 100 grade 1 specification of minus 40 degree Celsius to plus 125 degree Celsius temperature operation.

This design event is a clear demonstration of the reliability and performance that are

We began to ship a toggle emblem to support prototypes for this project during the third quarter and expect to continue to recognize revenue for approximately the next few years, depending on consumer reception of the SUV in the marketplace.

We are also pleased to share that in collaboration with Purdue University we won a project to advance artificial intelligence hardware through the micro electronic common program in collaboration with the Silicon Crossroads, micro electronic common or at CNC Hub

This project CMOS Plus M-RAM hardware for energy efficient artificial intelligence or Chita will leverage the unique capabilities of M-RAM for designing efficient in memory computing hardware fabrics.

Everspring will provide its state of the art, acid-element technology, optimized for fast switching and high-read margins to support energy efficient AI solutions.

In addition, everschool will deploy its manufacturing expertise to fabricate reliable STDM ram arrays.

We were one of the four projects to receive funding from the applied research institute and the project will receive a total of 21 million over four years to be distributed across all contributors.

Ever Splint is one of several contributors to this project and we expect to start recognizing

Earlier this month we attended the automotive chip-lect forum. The event brought together key players from the global automotive ecosystem to discuss how to jointly tackle the inevitable affiliation towards chip-lect architecture and cars.

This complimented our attendance at Semicon West, in July where we had a number of meaningful conversations with automotive companies about the capabilities of our plant, STDM, and chiplets to manage the vast amounts of data that EVs generate.

Through these events and ongoing discussions, we continue to support the development of the ecosystem for our SDDM RAM chiplets in the automotive sector.

We believe this will expand a market opportunity and enhance the growth over the coming years.

had mentioned in the past, a first step would be alignment on the interface for the chiplets and then the protocol that managed to the data across the interface. We expect to see chiplets addressing these applications over the next three years.

As a reminder, the chiplet is part of our Unices, Unified Code and Data Memory Solutions, which are currently in the design phase.

Last quarter we discussed having entered into a strategic agreement with the leading provider of sensor devices to provide community services for the latest generation DMR sensor device on our MRAM line in our

The project is progressing well based on results from the first silicon and we expect to meet our customers Q4 schedule and milestones.

We expect to recognize non-recaring engineering or an RE revenue for helping with the qualification.

We also expect to recognize Fondal Abhinial studying in Q4 from the initial production order.

This revenue stream will be recognized in our licensing and royalty revenue.

During the third quarter we continue to have meaningful conversations with customers which we believe will turn into additional design events for an FTTM ramp for this product over the coming quarters.

We are particularly excited to start working on the micro electronics common project to deploy the SDM RAM for the development of energy efficient AI solutions.

Speaker Change: I will not turn it over to our intern CFO, Matthew Naurio, who will take you through a third quarter of financials and fourth quarter 20-24 guidance.

Matthew!

and Good Afternoon Everyone.

Matthew Naurio: For the third quarter, we are pleased to deliver quarterly results with revenue of $12.1 million. Can line with our guidance range of $11.5 to $12.5 million. Compared to $16.5 million in the third quarter of 2023.

Matthew Naurio: MRAAM product sales in the third quarter, which include both toggle and STT MRAAM revenue, was 10.4 million, compared to 13.5 million in 2323.

This year over year decrease was a result of a decline in product sales due to the timing of customer demand.

Licensing, royalty, patent, and other revenue in the third quarter decreased to 1.7 million, compared to 2.9 million in Q323, due to lower royalties in the decline in revenue from our Red Heart projects.

Thank you.

Turning to gross margin, our gap gross margin was 49.2% for the third quarter. Down from 60.2% in Q323.

The decrease was due to a decline in product sales and licensing revenue related to our rad-hard deals.

Matthew Naurio: Gap operating expenses for the third quarter of 2024, where 8.1 million compared to 7.9 million into third quarter 2023.

The slight increase in OPEX was largely due to expenses related to our new XSPI family of STT M-Round products.

In August, As Sanjeev mentioned, we announced a strategic award to develop a long-term plan to provide manufacturing services for aerospace and defense segments.

Presumant to the award, ever been may receive cash payments, totalling up to approximately 14.6 million upon the achievement of certain technical tasks and deliverables over a span of two and a half years.

Due to the nature of the agreement in our performance obligations, we will recognize these payments over time as other income below the line.

In the third quarter of 2024, the company recorded 4.0 million of other income relating to this award.

Driven primarily by this award, we recorded 3rd quarter gap net income of 2.3 million or 10 cents per diluted share. Substantially ahead of our guidance range of a loss of 5 cents to 10 cents.

Based on 22 million weighted average, due to the shared outstanding.

This compares to net income of 2.4 million or 11 cents per diluted share in the third quarter of 2023.

Speaker Change: Fuzz.

Adjusted Ibidda was 4.2 million, compared to 4 million in Q323.

Speaker Change: Looking ahead, we remain on track to maintain positive, gap, net income in Q4.

We are pleased that our balance sheet remains strong and debt-free. We ended the quarter with cash and cash equivalence of 39.6 million, up from 36.8 million at the end of the prior quarter.

Looking ahead, we continue to believe our capital is sufficient to meet our anticipated capital requirements for the next year.

Castlo generated from operations was 2.8 million for the third quarter.

Speaker Change: Turning Out of Guidance.

Speaker Change: Looking to the remainder of 2024, we believe that product revenue will be essentially flat with a third quarter.

Speaker Change: We continue to see positive signs of recovery and inventory consumption of our customers, particularly in Europe, and expect this to drive additional demand in the coming quarters.

Taking these factors into consideration, you expect Q4 total revenue in the range of 12 million to 13 million.

and Gap Net Income, Purdue Lutit Share, to be between break-even and 5 cents.

In summary, we are pleased with the continued progress we have made with our customers in the form of design wins and new contracts.

Speaker Change: Going forward, we remain committed to scaling our business and converting additional design wins to revenue.

Operator, you may not open the line for questions.

As a reminder to ask a question, please press star 1-1 on your telfa. And wait for your name to be announced. To withdraw your question, please press star 1-1 again.

Speaker Change: The interest of time means that you please own yourselves to one question and one follow. You may rejoin the queue if you have any additional questions. Please stand by while we compile the Q&A roster.

And our first question comes from Quinn Bolton with Neatman Company, your line is open.

Hey, this is Shadimit Wally, Darling, and for Quim Bolin. Thanks for taking my question, guys. I'd like to start off on the onshore and ran for QGC award. Sorry if I missed this, but are you guys able to give more details on why this is getting recognized in other income versus actual revenue?

Yes, thank you for the question. We analyze the contract.

and the agreement and our performance obligations against the revenue recognition standard, ASC606, and it did not squarely fit within that. Because of that, we have decided to recognize it as other income below the line.

Speaker Change: Great, thanks for that. And then my follow-up question is on gross margin. Gross margin was relatively flat sequentially, even though licensing revenue was picked up nicely. So it was wondering if you had to give some more details on what kept margin flat.

I think we continue to see the effect of the lower demand of our toggle products which run through the Chandler Fath facility. So we are having to absorb the fixed-cost associated with that facility against a smaller amount of units that are flowing through that Fath.

But as way you got that made work.

We would expect that to improve.

Great. Yeah, that makes sense and that's all for me.

Thank you. Our next question comes from Richard Shannon with Craig Howell. Your line is open.

Richard Shannon: I think you're taking my questions as well. I'm going to fall upon the topic of the...

The DOD contractor recording and not operating come here.

I guess two questions from me. First of all, is this something that's recognized, radically, every quarter, milestone based or otherwise, and then can you kind of maybe qualitatively or quantitatively describe how much is built into your guide's report.

Thank you Richard. Yes. So as I said, it did not fit into the criteria of the...

Richard Shannon: Accounting Standard for Revenue Recognition.

Richard Shannon: However, we analyze and we are using some principles of the new recognition by analogy, meaning we will recognize it over the two and a half years, radibly, based on the efforts and some of the milestones that are laid out in the agreement.

Speaker Change: Okay.

So I guess I'm trying to fit the numbers here into the guys that are trying to...

See how these work together here and it seems to be implying either higher objects or lower gross margins, all of these being equal to kind of get to the midpoint of the EPS guide here. Is there dynamics that are hitting either of those categories and help explain this or is just some conservatism built in here?

I think it might be a combination of both. We have factored in what we believe might be contributing from the DOD agreement that we've discussed.

and we are also contributing some of the contribution that Sanjeev had mentioned with those other rad-hard projects that we have and that combined with our continued STTM Ram Data Center strength.

Okay, fair enough, that's my two questions I will jump in line guys, thank you.

Speaker Change: Thank you, sir. Thank you. As a reminder to ask a question, please press star 1-1. Again, that is star 1-1 to ask a question.

In our next question comes from...

Richard Shannon with Craig Allen, Capital Group, your line is open.

Richard Shannon: Alright, well, lucky me I get jump right back in here. Let's see your Sanjeev, maybe a question or two for you here.

Richard Shannon: So, Matt's guidance, he mentioned his prepare remarks, his for product revenues being flat here.

Last quarter, and again this quarter you talked about some signs of inventory to get the word you say was Asian.

or Provenator, whatever. But seeing flat products, you know, cadence here to the fourth quarter, doesn't necessarily show that. Maybe against help us understand those dynamics here and then, you know, one should be expected to see.

You know, sequential growth kind of layering in over time and then maybe help us kind of build in how much the new persistent products are going to help you do that.

Richard Shannon: Good question Richard. So let me start with the persistent STDM program that we brought to the market last year.

We continue to see design events on that project with those products, but as you know the qualification time is anywhere from 18 to 18 months.

So I don't think we're going to see significant product revenue from that product line in Q4. But we do expect it to see some ramp in 2025.

Speaker Change: And as far as the product revenue with respect to our existing products, the total MRAAM and the one gigabit, we have a very modest growth burden going in from Q3 to Q4, just that the signals that we're seeing are...

Very difficult to decipher. Some are positive and some are not so positive. So there is some conservatism built into the plan over here.

Okay, maybe touching on that last comment to any way you can describe where.

and Markets of Geography, where you're seeing this and the past you talked about some weakness in Europe and I think Japan, I think Japan maybe even hit by some currency dynamics there. Moving to helpless kind of peel the layer back on that one a little bit.

So I think, like you've discussed in the past, I think Japan continues to be a challenge and then in Europe you've seen that Germany seems to be going through some turmoil as well. So I think those two combined are impacting our revenue profile for Q4 Agua.

Fair enough, I will jump out of line guys, thank you.

Speaker Change: Thank you.

Speaker Change: Thank you.

and our next question comes from Quinn Bolton with Need to Me Company, your line is open.

Hey guys, thanks for taking my follow up. This is more of a technical question on M. Rams' Persist family of products, but maybe you guys clarify the differences between Persist, Unicist, and Agilist, and then, I'll talk about the different use cases and markets, those product lines specifically addressed.

Sure, I can give it a shot. So the persist family, the way to think about it is you're looking for very fast, read and write.

And you're looking for a large number of read and writes. So for example, 10 to 12, 10 to 14, or larger read and writes.

and you're looking for basically persistence in the operating temperature range which is anywhere from minus 40 to 125 degree C, if it's automotive or minus 40 to 85 if it's industrial grade.

and that's the process family that includes our one gigabit, SETM ram that we are shipping to the IBM Flash Core modules.

Speaker Change: I then includes the new product family that we brought to the market last year, the X SPI family that goes from 4 MB to 128 MB and then our toggle M-RAM family which is basically we've been selling since our inception in 2008.

So all of those products come into the process family and they have this characteristics that I was talking about where you have fast data read and writes or data logging and then unlimited number of read and writes in the operating temperature range which could be automotive on industrial.

Speaker Change: The UNICEF'S product family is basically looking for not so many reads and writes. You're looking for, let's say, a million to 10 million or 100 million read and writes only.

and you're looking for, again, fast-free and right. There is the built-in advantage of a city-mram compared to

Other technologies out there that include North Flash or NAND Flash or when a resistive ram. So that's the UNSSS family that includes the chiplets that I was talking about during my script and it also includes any SOC type solutions using this type of product.

An Agilacy is actually our forward-looking, where we are still in a research environment, we're trying to build a...

Fath Data Logging.

Zero Stand By Current and trying to match the speeds of an SRAM. And that's the project we talked about with Purdue and the ME Commons that we're just getting started and we really excited to show what STDM I'm can do over that.

Now, backing up, persist applications, you should think of industrial automation like PLC computers, you can think of gaming, casino gaming, and you can think of medical and aerospace and defense industry.

Speaker Change: For the UNSSET products, you should think about Automotive, FPGA Configuration Memory, and also industrial applications as well over there. And with the Agilest, it's going to be mostly artificial intelligence, AI solutions on the edge.

I think I can speak a lot more to it but I think this is enough for now. So if you have any further questions, we can take it offline maybe Shadi.

Awesome, yeah, thanks for watching, I'll take a look at that.

Thank you. And our next question comes from Richard Shannon with Craig Howell, your lines open.

So I need just one question for me, kind of touching an Iwani prepared a Martian something you just mentioned here, but the Purdue program.

Maybe you can talk to us a little bit about any more detail that what you expect out of this over what time, any sort of financial contributions to your model over time, etc.

So, as far as the financial contribution of time, Richard, we haven't actually signed the contract with the producer, so I don't have a visibility to that that I can talk about today.

But as far as the output of the product is concerned, I think we want to learn how to tune our SDM Ram technology for the ISN issue. And one thing you already know is we're looking for very fast to begin, right? And you're looking for much higher signal margin for reads.

Because there's going to be a reading intensive application.

Speaker Change: and then you are basically building fabric around it to be able to transfer the data from the edge to the center to the data center.

I think that is what we're going to learn out of this as far as a product is concerned. I think we take the learning and have to go and build a product outside of this project. This project is not going to lead to any product solutions that we can talk about today.

Okay, so that's a great detail, that's all for me. Thank you.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Sanjeev Aggarwal for closing your marks.

Thank you, Abair and I want to thank everyone again for joining the culture. I also want to take the advantage of those of you that are actually

Celebrating the Indian Festival Diwali, I want to wish you guys all a happy Diwali.

and also photos of you guys that are celebrating Halloween, Happy Halloween and talk to you at the next learnings called. Thank you.

Speaker Change: This concludes today's conference call.

Thank you for participating, you may now disconnect.

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