Everspin Technologies, Inc.

Good afternoon and welcome to the conference call to discuss Everspin Technologies' second quarter 2021 financial results. At this time, all participants are in a listen-only mode. At the conclusion of today's conference call, instructions will be given for the question and answer session. As a reminder, this conference call is being recorded today, Thursday, August 12, 2021. Before we begin the call, I want to remind you that this conference call contains forward-looking statements regarding future events, including but not limited to our expectations for 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. 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. We would encourage you to review our SEC filings, including our second quarter report on Form 10Q filed with the SEC on August 12, 2021, and other SEC filings made from time to time in which we may discuss risk factors associated with investing in Everspin. All forward-looking statements are made as of the date of this call, and except as required by law, we do not intend to update this information. The financial results discussed today reflect our preliminary estimates, are based on the information available as of the date hereof, and are subject to further review by Everspin and its external auditors. Our actual results may differ materially from these estimates as a result of the completion of our financial closing procedures, financial adjustments, and other developments arising between now and the time that our financial results for this period are finalized. 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. Included in the company's press release are definition and reconciliations of GAAP net loss to adjusted EBITDA, which provide additional details. This conference call will be available for audio replay for at least five days in the Investor Relations section of Everspin's website at www.everspin.com. And now I'd like to turn the call over to Everspin's Executive Chairman and Interim CEO, Darren Billerbeck. Darren, please go ahead.

Thank you, Operator, and thanks to everyone for joining us on the call today. Q2 results came in at the higher end of guidance, and as mentioned in our press release, we were GAAP net income positive for the first time in company history. Being GAAP net income positive is a key milestone for the company. It is simple proof point. that being laser-focused on improving yields, lowering OPEX spending, and growing our top line will drive profitability, albeit at lower revenue levels if your gross margin is higher. Revenue for Q2-21 was up 15% over Q1-21. For Q2-21, STT revenue bounced back, increasing 56%, and continues to gain traction as the market recovers. Toggle was flat to slightly down due to supply constraints. In fact, our current backlog suggests that toggle Q3 revenue would be even higher if we weren't supply-constrained once again, a testament to what seems to be a solid economic recovery in the industrial and factory automation areas, along with continuing to shift to the new design wins we've been discussing for the past couple of years. We continue to see strength in Q3 with starting backlog over Q2 for industrial customers, and we are encouraged to see that all four regions continue to grow. STT revenue was back on track as expected in Q2 and continues to trend in line with expectations for Q3 and Q4. Design wins continue to grow in Q2 2021 as they did in Q1. We're on track to match the design win total of 2021 versus 2020. As you may recall, 2020 was a record for design wins. We continue to focus our efforts now on turning those opportunities into real revenue with the only limiter being the industry supply. On the Q2 operations front, we continue to focus on yield improvement and lowering our costs everywhere. We expect to see growth margins begin to flatten out through the end of the year as most of our gains are being offset by supplier price hikes. The biggest risk to our plan this year continues to be about getting the capacity at the committed pricing in the tight capacity situation worldwide. As we discussed last quarter, we want a rad-hard design collected $3 million in cash, and finally this quarter were able to recognize some of the revenue. Q2 revenue did include about $1.2 million in licensing revenue, and we expect to recognize the rest of the remaining portion of the $3 million based on development milestones for the next couple of quarters. I will now turn the call over to Interim CFO Anuj Agrawal, who will take you through our Q2 quarterly financials and Q3 quarter 2021 guidance.

Anuj. Thank you, Darren, and good afternoon, everyone. We are pleased to report GAAP record financial results for the June quarter, reflecting our strong operating results. Highlights include positive net income for the first time, revenue at the top end of guidance, and improved gross margin. Revenue for the second quarter of 2021 came in at $11.85 million, compared to $10.3 million last quarter and $11.8 million in the second quarter of 2020. MRAM product sales in the first quarter, which included both Toggle and ST MRAM, revenue was $10 million versus $8.9 million in the prior quarter and $10.9 million in Q2 2020. Q2 reflected the first time the company recognized $1.2 million revenue from the Radhart deal resulting in licensing royalties and other revenue in the quarter of $1.7 million compared to $1.4 million in the previous quarter and $0.9 million in the prior year period. The increase in revenue is due to strong SDT sales and Radhart revenue recognition offsetting the yearly true-up in royalty that was recognized in Q1. Shipments to suppliers for our largest end customer who we serve with our high density STT product for data center applications, represented 34.7% of revenue in the quarter versus 25.6% of revenue in Q1 and 34.4% in the year-ago quarter. Turning to gross margin, GAAP gross margin for the second quarter of 2021 was 60.7% versus 58.2% in the prior quarter and 43.9% in Q2 2020. The higher gross margin is driven by red-hard revenue recognition and improved yields. Gap operating expenses for the second quarter of 2021 were $6.7 million versus $6.3 million in the prior quarter and $6.3 million in the same quarter one year ago. The increase was specifically for 28-nanometer product development. Gap operating expenses in the second quarter of 2021 included $0.7 million of stock-based compensation compared to $0.74 million last quarter and 0.92 million in the year-ago quarter. We expect R&D to grow minimally the remainder of 2021 as we prepare for the launch of our 28-nanometer SDT MRAM product targeted at industrial and other based applications. For the first time in company history, we are reporting a positive net income of 0.256 million, or one cent per share, based on 19.3 million basic weighted average shares outstanding. This compares to a gap net loss of $460,000 or .02 cents per share in the first quarter of 2021 and a gap net loss of $1.29 million or negative seven cents per share in the first quarter of 2020. Earnings per share of one cent was better than our guidance range, reflecting our tight operational discipline and strong gross margin. Turning to the balance sheet, cash and cash equivalents decreased to $14.2 million at the end of the second quarter, compared to $15.5 million at the end of the prior quarter, and $12.9 million in Q2-20. Cash flow from operations was negative at $0.56 million for the quarter, but remained positive at $1.1 million for the first half of the year. Turning to our third quarter guidance, we expect revenue in the range of $11.7 million to $12.7 million which at the midpoint of $12.2 million represents a 3% increase over the $11.9 million from the second quarter of this year. We expect a gap loss per share of between negative 4 cents and negative 7 cents, primarily driven by expenses related to next-generation 28-nanometer STT MRAM product and price increases from our suppliers. I'll now turn it back over to Darren for some brief additional commentary before we open it up for questions.