Everspin Technologies, Inc.

Good afternoon and welcome to the conference call to discuss Everspend Technology's fourth quarter and full year 2023 financial results. At this time, all participants are in listen-only mode. At the conclusion of today's conference call, instructions will be given for the -and-answer session. As a reminder, this conference call is being recorded today, Wednesday, February 28, 2024. I would now turn the conference over to Cassidy Fuller, Investor Relations for Everspend.

Thank you, Operator, and good afternoon, everyone. Everspend released results for the fourth quarter and full year 2023 and did December 31, 2023, this afternoon after the market closed. I'm Cassidy Fuller, Investor Relations for Everspend, and with me on today's call are Sanjeev Agrawal, President and Chief Executive Officer, and Anuj Agrawal, Chief Financial Officer. 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 the company's expectation for Everspend's future business, financial performance, and goals, customer and industry adoption of NRAAM technology, successful bringing to the market and manufacturing products in Everspend's design pipeline, and executing on its business plan. These forward-looking statements are based on estimates, judgments, current trends, and 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 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 Everspend. All forward-looking statements are made as of 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. 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 Everspend 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. Included in the company's press release are definitions and reconciliations of GAAP and net income to adjusted EBITDA, which provide additional details. A copy of the press release is posted on the Investor Relations section of Everspend's website at .everspend.com. And now I'd like to turn the call over to Everspend's President and CEO, Sanjeev Argulwal. Sanjeev, please go ahead.

Thank you, Cassidy, and thanks to everyone for joining us on the call today. We are pleased to report record annual revenue and profitability for 2023 with a strong gross margin, a solid balance sheet with no debt, and the highest cash balance in our company's history. During the fourth quarter, we delivered revenue of $16.7 million above the high end of our guidance range of $15.4 million to $16.4 million. This led to a record full year revenue of $63.8 million, which was up 6% year over year. We delivered a gross margin of .1% in the fourth quarter, up from .4% in Q4 2022. We recorded our 11th quarter in a row of GAAP profitability, a strong focus for the company, and we ended the year with a cash balance of $36.9 million. On the product side, we had a total of 217 design wins in 2023, up 3% year over year. Our pipeline of new design wins for our M-RAM products remains strong and exceeded our internal expectations. We expect our existing toggle M-RAM product customers will qualify our new industrial STT M-RAM products this year, while our newer M-RAM customers will qualify later in 2025. Additionally, our new industrial STT M-RAM product line has continued to gain momentum in terms of design wins, showcasing the importance of ramping technology from the last few quarters. Looking ahead, we expect to begin translating these design wins into revenue in the second half of 2024. We remain committed to preserving Aversivn's position as a leader in M-RAM technology, and this is reflected in our extensive intellectual property portfolio and the successful licensing of our technologies. As we discussed on our last earnings call, we entered into two new radiation hard program arrangements. The first related to toggle M-RAM to develop reliability models for strategic radiation hardened toggle M-RAM applications. The second agreement was to license our STT M-RAM technology to build a strategic radiation hardened FPGA. This second project remains ongoing into the first quarter of this year. As the project progresses, we anticipate additional government funding to help support the build of this FPGA device. We anticipate this project to continue progressing this year. We also want to provide an update on our existing ad hoc 64 megabit STT M-RAM project that we started in early 2022. We expect to receive additional silicon from our supplier, which we will use to create a demonstration of working silicon. This will be a higher margin, lower volume product, and we expect to recognize revenue from this project throughout 2024. As we mentioned on our previous call, a new key focus for us is distributed M-RAM or DM-RAM. As discussed, we believe our DM-RAM approach is revolutionary and will give us an edge on energy efficiency and scaling as we deploy the solution in FPGAs and AI inference engines. We look forward to updating you on our progress here over the coming quarters. Turning to our outlook for 2024, we continue to have good visibility and a strong pipeline driven by solid product backlog. We expect the first half of the year to be more muted, given economic weakness in China and softness in industrial and automotive sectors, in part due to inventory digestion and rebalance. However, we expect a ramp in the second half of 2024 as we begin to recognize revenue from our design wins for our STT M-RAM products that we have discussed over the past two years. Moreover, we expect to see continued growth in our toggle M-RAM products as well as additional design wins. I will now turn it over to our CFO, Anuj Agarwal, who will take you through our fourth quarter financials and first quarter 2024 guidance. Anuj.

Thank you, Sanjeev, and good afternoon, everyone. As part of our fourth quarter and full year 2023 financial results, we are pleased to announce that we have achieved record annual revenue of $63.8 million and record profitability with net income of $9.1 million in 2023. Q4 2023 also marks our 11th consecutive quarter of positive net income. In addition, we generated positive cash flow from operations, resulting in the highest cash balance of our company's history of $36.9 million. We delivered strong quarterly results above the high end of our guidance range of $15.4 to $16.4 million, with revenue of $16.7 million and diluted earnings per share of $0.09. We also recorded positive cash flow from operations of $2 million. Our revenue outperformance was preliminarily driven by the success we had seen in our rad car deals, which have continued to progress well from a technology standpoint. MRAM product sales in the fourth quarter, which includes both toggle and SCT MRAM revenue, were $12.4 million compared to $14.6 million in Q4 2022. Licensing, royalties, patents, and other revenue in the fourth quarter increased to $4.3 million compared to $1.1 million in Q4 2022. Shipments to suppliers for our high density STT product for data center applications represented .1% of revenue in the fourth quarter versus .7% of revenue in Q4 2022. Turning to gross margin, our gap gross margin for the fourth quarter of 2023 was .1% up from .4% in Q4 2022. Gap gross margin for 2023 was 58.4%, an increase from .6% in 2022. The -over-year increase in gross margin is a result of being able to offset increased pricing from suppliers with increased yields on our toggle products and increased licensing revenue to offset the decrease in product sales. Gap operating expenses for the fourth quarter of 2023 were $8.1 million compared to $7.5 million in the fourth quarter of 2022. The increase in operating expenses in the quarter compared to Q4 2022 was primarily driven by the development and enhancement of our new XPi family of STT MRAM products and increased professional service costs. Fourth quarter 2023 net income was $2.0 million or $0.09 per diluted share based on 21.7 million weighted average fully diluted shares outstanding. This compares the net income of $0.6 million or $0.03 per diluted share in the fourth quarter of 2022. Fully diluted EPS of $0.09 was above the high end of our guidance range reflecting our strategic operational discipline and ability to drive profitability in the face of macroeconomic uncertainties. Fully diluted EPS for 2023 was $0.42 compared to $0.29 in 2022. For Q4 2023 adjusted EBITDA was $3.6 million compared to $2.1 million in Q4 2022. Adjusted EBITDA for 2023 was $15.3 million which includes the employee retention credit of $2 million compared to $11.8 million in 2022. We ended the quarter with cash and cash equivalents of $36.9 million up from $34.9 million at the end of the prior quarter. The increase in cash quarter over quarter is a result of Everspins continued focus on strong cash management while growing cash flow from operations as the company continues to operate debt free. Cash flow from operations was healthy at $2 million for the fourth quarter. For the full year cash flow from operations was $13.1 million up from $9.5 million in 2022. Turning to guidance, we anticipate revenue to ramp as we move through the year with the first half a bit lower than our traditional seasonality given ongoing economic weakness in China and softness in the industrial and automotive sectors. We expect growth to accelerate in the second half of 2024 as we begin to recognize revenue from design wins of our SDT and toggle MRAM products. Taking these factors into consideration, we expect Q1 total revenue in the range of $13.5 million to $14.5 million and gap net income per diluted share to be between break even and $0.05. In summary, we are pleased to report another solid year of growth with record annual revenue, profitability and earnings per share. Our financial position remains strong, boasting a debt free balance sheet and the highest cash balance in company's history. While we expect to experience a slower start to the year, we expect a solid second half of 2024. We also expect to see additional growth in our toggle MRAM and DRAM products and we expect to begin recognizing revenue for our SDT MRAM products. Thank you for joining us today. Operator, you may now open the line for questions.

Operator 1 Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your telephone. Again, to ask a question, please press star 1-1 on your telephone. We do ask that you please limit yourselves to two questions and then feel free to rejoin the queue. One moment for our first question. Our first question comes from the line of Quinn Bolton of Needham & Company. Your line is open.

Neil Young Hey, this is Neil Young, I'm for Quinn Bolton. Thanks for taking my questions. I first wanted to ask about the gross margin number in the fourth quarter. You gave some color on the year over year change, but I was hoping you could share with your own the sequential decline in gross margin considering that the licensing royalties, patents, and other revenue appear to be strong.

Dr. Jack Walts Yeah, hi there. It's on a Jaggerwall. The gross margin has performed really well over last year. We've been saying we'd be mid-50s in gross margin. I think what you're seeing is the yields tapered off and we had slightly lower licensing revenue compared to the prior quarter. You see a decline in the gross margin, but it's still above our internal model and expectations.

Neil Young Okay, thanks for that. My follow-up is last quarter you talked about some of the weakness in industrial automation in China. It sounds like that continued in the fourth quarter given the -over-quarter decline in product revenue. Did you see that weakness spread across other geographical areas and markets? Regarding the first quarter outlook, I was hoping you could share what you're thinking across the two segments, products and licensing, and then maybe within products what you're thinking separately for toggle and SCDM ramp.

Thanks. Dr. Jack Walts Sure, absolutely. It's a couple of questions. Let me try to go one by one. I think from a backlog perspective, as you look at the backlog, you're seeing challenges within the industrial and automotive space. To your question in terms of geographies, APAC in general has shown some weakness. Japan and China, there's been some challenges there. We saw that starting in Q4 and we see that in Q1 as well. From a guidance perspective, sorry, what was the second part of the question for guidance?

Dr. Jack Walts Yeah, I was wondering if you could share what you're thinking across the two segments between products and licensing and then maybe within the products segment what you're thinking separately for the two buckets.

Dr. Jack Walts Yeah, absolutely. So for revenue we're expecting $13.5 to $14.5 million. We expect Q1 to be strong again from a licensing and royalty perspective. We do see some decline in product revenue and so that's why we're guiding to that number. It's again mainly because of the APAC challenges and the challenges in China. We're also seeing customers looking at bleeding down inventory and concerned with their inventory and so because of that we're conservatively setting guidance at those numbers.

Dr. Vashunath Nandigam So just to add to that, Neil, I think we are still optimistic on the second half of this year and we are really focusing on a few things. One is this low density STD MRAM product that we brought out a couple of years. We're seeing good traction in the industry even in Asia PAC. So we expect that we'll be able to get some traction in the second half of 2024. And as you know with all the supply chain issues that everybody had last year and the year before Everspun actually managed the supply chain very well. And because of that we have some earned some goodwill with our customers. So with our toggle customers we're actually going back and talking to our customers to see if we can actually precipitate some design wins, actually win sockets from some of our customers and those discussions are going well. And giving you color on the RadHard deals basically we do expect the project that we are working on for the FPGA to continue throughout the year. And so we will see some, we expect to see some licensing RadHard revenue from there. And then also our initial project, the 64 megabyte STD MRAM will continue through this year and we will recognize revenue along the way. Great, thanks.

Sure. Thank you. Again ladies and gentlemen if you'd like to ask a question please press star 1-1 on your telephone. Again to ask a question please press star 1-1. One moment please. I'm showing no further questions at this time. I would like to turn the call back over to Anuj Agarwal for any closing remarks.

Okay, with that we conclude today's call. Thank you all for joining us and we look forward to updating you on our progress next quarter. I'm afraid you're being happy to make the call. Thank you.

Thank you. Ladies and gentlemen this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.

Thank you.

Good afternoon and welcome to the conference call to discuss Everspend Technologies fourth quarter and full year 2023 financial results. At this time all participants are in 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, Wednesday, February 28, 2024. I would now turn the conference over to Cassidy Fuller Investor Relations for Everspend.

Thank you operator and good afternoon everyone. Everspend released results for the fourth quarter and full year 2023 ended December 31, 2023 this afternoon after the market closed. I'm Cassidy Fuller Investor Relations for Everspend and with me on today's call are Sanjeev Agrawal President and Chief Executive Officer and Anuj Agrawal Chief Financial Officer. 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 the company's expectation for Everspend's future business, financial performance and goals, customer and industry adoption of M-RAM technology, successful bringing to the market in manufacturing products in Everspend'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 the company's SEC filings including the annual report on Form 10K and other SEC filings made from time to time in which the company may discuss risk factors associated with investing in Everspend. All forward looking statements are made as of 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. 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 Everspend 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 gap and non-gap terms. Included in the company's press release are definitions and reconciliations of gaps in net income to adjusted EBITDA which provide additional details. A copy of the press release is posted on the investor relations section of Everspend's website at .everspend.com. And now I'd like to turn the call over to Everspend's President and CEO Sanjeev Argul. Sanjeev, please go ahead.

Thank you, Cassidy, and thanks everyone for joining us on the call today. We are pleased to report record annual revenue and profitability for 2023 with a strong gross margin, a solid balance sheet with no debt, and the highest cash balance in our company's history. During the fourth quarter, we delivered revenue of $16.7 million, above the high end of our guidance range of $15.4 million to $16.4 million. This led to a record full year revenue of $63.8 million, which was up 6% year over year. We delivered gross margin of .1% in the fourth quarter, up from .4% in Q4 2022. We recorded our 11th quarter in a row of gap profitability, a strong focus for the company, and we ended the year with a cash balance of $36.9 million. On the product side, we had a total of 217 design wins in 2023, up 3% year over year. Our pipeline of new design wins for our M-RAM products remained strong and exceeded our internal expectations. We expect our existing toggle M-RAM product customers will qualify our new industrial STT M-RAM products this year, while our newer M-RAM customers will qualify later in 2025. Additionally, our new industrial STT M-RAM product line has continued to gain momentum in terms of design wins, showcasing the importance of ramping technology from the last few quarters. Looking ahead, we expect to begin translating these design wins into revenue in the second half of 2024. We remain committed to preserving Everspun's position as a leader in M-RAM technology, and this is reflected in our extensive intellectual property portfolio and the successful licensing of our technologies. As we discussed on our last earnings call, we entered into two new radiation hard program arrangements. The first related to toggle M-RAM to develop reliability models for strategic radiation hardened toggle M-RAM applications. The second agreement was to license our STT M-RAM technology to build a strategic radiation hardened FPGA. This second project remains ongoing into the first quarter of this year. As the project progresses, we anticipate additional government funding to help support the build of these FPGA device. We anticipate this project to continue progressing this year. We also want to provide an update on our existing ad hoc 64 megabit STT M-RAM project that we started in early 2022. We expect to receive additional silicon from our supplier, which we will use to create a demonstration of working silicon. This will be a higher margin, lower volume product, and we expect to recognize revenue from this project throughout 2024. As we mentioned on our previous call, a new key focus for us is distributed M-RAM or DM-RAM. As discussed, we believe our DM-RAM approach is revolutionary and will give us an edge on energy efficiency and scaling as we deploy the solution in FPGAs and AI inference engines. We look forward to updating you on our progress here over the coming quarters. Turning to our outlook for 2024, we continue to have good visibility and a strong pipeline driven by solid product backlog. We expect the first half of the year to be more muted given economic weakness in China and softness in industrial and automotive sectors, in part due to inventory digestion and rebalance. However, we expect a ramp in the second half of 2024 as we begin to recognize revenue from our design wins for our STT M-RAM products that we have discussed over the past two years. Moreover, we expect to see continued growth in our toggle M-RAM products as well as additional design wins. I will now turn it over to our CFO, Anuj Agarwal, who will take you through our fourth quarter financials and first quarter 2024 guidance. Anuj.

Thank you, Sanjeev, and good afternoon, everyone. As part of our fourth quarter and full year 2023 financial results, we are pleased to announce that we have achieved record annual revenue of $63.8 million and record profitability with net income of $9.1 million in 2023. Q4 2023 also marks our 11th consecutive quarter of positive net income. In addition, we generated positive cash flow from operations, resulting in the highest cash balance of our company's history of $36.9 million. We delivered strong quarterly results above the high end of our guidance range of $15.4 to $16.4 million, with revenue of $16.7 million and diluted earnings per share of $0.09. We also recorded positive cash flow from operations of $2 million. Our revenue outperformance was preliminarily driven by the success we had seen in our rad car deals, which have continued to progress well from a technology standpoint. MRAM product sales in the fourth quarter, which includes both toggle and STT MRAM revenue, were $12.4 million compared to $14.6 million in Q4 2022. Licensing, royalties, patents, and other revenue in the fourth quarter increased to $4.3 million compared to $1.1 million in Q4 2022. Shipments to suppliers for our high density STT product for data center applications represented .1% of revenue in the fourth quarter versus .7% of revenue in Q4 2022. Turning to gross margin, our gap gross margin for the fourth quarter of 2023 was .1% up from .4% in Q4 2022. Gap gross margin for 2023 was 58.4%, an increase from .6% in 2022. The year over year increase in gross margin is a result of being able to offset increased pricing from suppliers with increased yields on our toggle products and increased licensing revenue to offset the decrease in product sales. Gap operating expenses for the fourth quarter of 2023 were $8.1 million compared to $7.5 million in the fourth quarter of 2022. The increase in operating expenses in the quarter compared to Q4 2022 was primarily driven by the development and enhancement of our new XPi family of STT MRAM products and increased professional service costs. Fourth quarter 2023 net income was $2.0 million or $0.09 per diluted share based on 21.7 million weighted average fully diluted shares outstanding. This compares the net income of $0.6 million or $0.03 per diluted share in the fourth quarter of 2022. Fully diluted EPS of $0.09 was above the high end of our guidance range reflecting our strategic operational discipline and ability to drive profitability in the face of macroeconomic uncertainties. Fully diluted EPS for 2023 was $0.42 compared to $0.29 in 2022. For Q4 2023 adjusted EBITDA was $3.6 million compared to $2.1 million in Q4 2022. Adjusted EBITDA for 2023 was $15.3 million which includes the employee retention credit of $2 million compared to $11.8 million in 2022. We ended the quarter with cash and cash equivalents of $36.9 million up from $34.9 million at the end of the prior quarter. The increase in cash quarter over quarter is a result of Everspins continued focus on strong cash management while growing cash flow from operations as the company continues to operate debt free. Cash flow from operations was healthy at $2 million for the fourth quarter. For the full year cash flow from operations was $13.1 million up from $9.5 million in 2022. Turning to guidance, we anticipate revenue to ramp as we move through the year with the first half a bit lower than our traditional seasonality given ongoing economic weakness in China and softness in the industrial and automotive sectors. We expect growth to accelerate in the second half of 2024 as we begin to recognize revenue from design wins of our SDT and toggle MRAM products. Taking these factors into consideration, we expect Q1 total revenue in the range of $13.5 million to $14.5 million and gap net income per diluted share to be between break even and $0.05. In summary, we are pleased to report another solid year of growth with record annual revenue, profitability and earnings per share. Our financial position remains strong, boasting a debt free balance sheet and the highest cash balance in company's history. While we expect to experience a slower start to the year, we expect a solid second half of 2024. We also expect to see additional growth in our toggle MRAM and DRAM products and we expect to begin recognizing revenue for our SDT MRAM products. Thank you for joining us today. Operator, you may now open the line for questions.

Thank you. Ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your telephone. Again, to ask a question, please press star 1-1 on your telephone. We do ask that you please limit yourselves to questions and then feel free to rejoin the queue. One moment for our first question. Our first question comes from the line of Quinn Bolton of Needham & Company. Your line is open.

Hey, this is Neil Young, I'm for Quinn Bolton. Thanks for taking my questions. I first wanted to ask about the gross margin number in the fourth quarter. You gave some color on the year over year change, but I was hoping you could share what drove the sequential decline in gross margin considering that the licensing royalties, patents and other revenue appear to be strong.

Yeah, hi there. It's on a Jaggerwall. The gross margin has performed really well over last year. We've been saying we'd be mid-50s in gross margin. I think what you're seeing is the yields tapered off and we had slightly lower licensing revenue compared to the prior quarter. You see a decline in the gross margin, but it's still above our internal model and expectations.

Okay, thanks for that. Then my follow-up is last quarter you talked about some of the weakness in industrial automation in China. It sounds like that continued in the fourth quarter given the quarter over quarter decline in product revenues. Did you see that weakness spread across other geographical areas and markets? Then regarding the first quarter outlook, I was hoping you could share what you're thinking across the two segments, products and licensing, and then maybe within products what you're thinking separately for toggle and SCDM ramp.

Thanks. Sure, absolutely. So it's a couple of questions. Let me try to go one by one. So I think from a backlog perspective, as you look at the backlog, you're seeing challenges within the industrial and automotive space. And to your question in terms of geographies, APAC in general has shown some weakness. So Japan and China, there's been some challenges there. So we saw that starting in Q4 and we see that in Q1 as well. And then from a guidance perspective, sorry, what was the second part of the question for guidance?

Yeah, so I was wondering if you could share what you're thinking across the two segments between products and licensing and then maybe within the products segment what you're thinking separately for the two buckets. Thanks.

Yeah, absolutely. So for revenue we're expecting $13.5 to $14.5 million. We expect Q1 to be strong again from a licensing and royalty perspective. We do see some decline in product revenue and so that's why we're guiding to that number. It's again mainly because of the APAC challenges and the challenges in China. We're also seeing customers looking at bleeding down inventory and concerned with their inventory and so because of that we're conservatively setting guidance at those numbers.

So just to add to that, Neil, I think we are still optimistic on the second half of this year and we are really focusing on a few things. One is this low-density STDM RAM product that we brought out a couple of years. We're seeing good traction in the industry even in Asia PAC. So we expect that we'll be able to get some traction in the second half of 2024. And as you know with all the supply chain issues that everybody had last year and the year before, Everspend actually managed the supply chain very well. And because of that we have some, earned some goodwill with our customers. So with our toggle customers, we're actually going back and talking to our customers to see if we can actually precipitate some design wins, actually win sockets from some of our customers. And those discussions are going well. And giving you color on the RadHard deals, basically we do expect the project that we are working on for the FPGA to continue throughout the year. And so we will see some, we expect to see some licensing RadHard revenue from there. And then also our initial project, the 64-megabyte STDM RAM will continue through this year and we will recognize revenue along the way.

Great, thanks.

Sure. Thank you. Again, ladies and gentlemen, if you'd like to ask a question, please press star 1-1 on your telephone. Again, to ask a question, please press star 1-1. One moment please. I'm showing no further questions at this time. I would like to turn the call back over to Anuj Agarwal for any closing remarks.

Okay, with that we conclude today's call. Thank you all for joining us and we look forward to updating you on our progress next quarter. I'll pleasure you being here to connect the call. Thank you.

Thank you. Ladies and gentlemen, this does conclude today's conference. Thank you all for participating. You may now disconnect. Have a great day.