Everspin Technologies, Inc.

Good afternoon and welcome to the conference call to discuss Everspan Technologies' third 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, November 11, 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 third quarter report on Form 10-Q, which will be filed with the SEC on November 13, 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 Everspins and its external auditors. Our actual results may differ materially from these estimates as a result of the completion of our financial closing procedures, final adjustments, and other developments arising between now and the times 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. Included in the company's press release are definitions 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 for everyone for joining us on the call today. First and foremost, let's begin today by recognizing all those among us who have been part of the great brotherhood and sisterhood we call the U.S. military. Our veterans, active duty service members, guardsmen, and reservists. Your service and sacrifice have 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 GapNet and composite for the second quarter in a row. and had positive gap 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 gap net income positive continues to be a focus for the company. We believe this demonstrates that being laser focused on improving product yields, controlling OPEX spending, growing our top line while keeping growth 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 tester we can. STT revenue was flattish as our largest customer was also saddled with supply constraints. The good news is that Everspend was not the constraint culprit. However, based on other suppliers, we do expect STT revenue to continue to be flat for the next couple of quarters. To date, over 1,500 customers have now reached production status using standalone MRAMs. Our design wins continue to grow, keeping pace with our record year in 2020, adding another 40 new design wins in the current quarter. These design ones cross many applications in all geographies, including industrial automation, robotics, transportation, aerospace, and defense. On the R&D front, we taped out our next generation STT product, which we expect to see for silicon out by the end of this year. This new product will be revolutionary in its ability to serve both the SRAM replaceable market along with mid-density rugged NOR applications where no other memory can play. Finally, with respect to our deliberate strategy of monetizing our IP, we did close two more IP transactions in addition to the RadHard 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 our CFO, Anuj Agrawal, who will take you through our third quarter financials and fourth quarter 2021 guidance.

Anuj. Thank you, Darren, and good afternoon, everyone. We are 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 $0.88 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 supply constraints. Revenue for the third quarter of 2021 came in at $14.8 million compared to $11.85 million last quarter and $10.1 million in the third quarter of 2020. MRAM product sales in the third quarter, which include both toggle and SDT MRAM revenue, was $12 million versus $10.2 million in the prior quarter and $9.6 million in Q3 2020. In Q3 2021, the company entered into an IP monetization deal worth $5.25 million. $1.3 million in revenue was recognized in Q3 and the remaining $3.95 million of revenue will be recognized in Q4 2021. Licensing, royalties, and other revenue in the quarter was $2.8 million compared to $1.6 million in the previous quarter and 0.5 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 SDT product 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 margin, GAAP gross margin for the third quarter of 2021 was 57.1% versus 60.7% in the prior quarter and 23% in Q3 20. The higher gross margin compared to prior year quarter is driven by the Red Heart Revenue Recognition and the IP monetization deal. In the prior year, lower gross margin was reflected a one-time non-cash $1.7 million inventory reserve, and $0.4 million in accelerated depreciation. Gap operating expenses for the third quarter of 2021 were $7.4 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. Gap operating expenses and the third quarter of 2021 include $1 million of stock-based compensation compared to $0.7 million last quarter and $0.9 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 20-nanometer STT MRAM product targeted to industrial and other broad-based applications. We are pleased to report A positive net income of $0.88 million, or $0.05 per share, based on 19.5 million basic weighted average shares outstanding. This compares to a GAAP net income of $0.26 million, or $0.01 per basic share, in the second quarter of 2021, and a GAAP net loss of $3.9 million, or $0.21 per basis share, in the third quarter of 2020. Basic earnings per share of $0.05 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 $14.56 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 Q3-20. 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 $16.25 million to $17.25 million, which at the midpoint of $16.75 million reflects a 13.2% increase over the $14.8 million third quarter 2021 results. The revenue range reflects expected product revenue growth, as well as the remaining $3.95 million of revenue expected to be recognized for the IP monetization deal discussed earlier. We expect a gap income per basic share of between 0.02 cents and 0.08 cents, primarily driven by expenses related to next-generation 28-nanometer STTM REM 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.