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spk05: And thank you for standing by. Welcome to the conference call to discuss Everspend Technologies first quarter 2024 financial results. At this time, all participants are in listen only mode. At the conclusion of the day'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 of Everspend. Please begin.
spk01: Thank you, operator, and good afternoon, everyone. Everspend released results for the first quarter 2024 and in March 31st, 2024, 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 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 Everspend's future business, financial performance, and goals, customer and industry adoption of M-RAM technology, successfully bringing to 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 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 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. 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 net income to adjust to 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 Arduwal. Sanjeev, please go ahead.
spk04: 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 gross margin of .5% in the first quarter compared to .8% in Q1 2023. We ended the year with a cash balance of 34.8 million. 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 solutions. 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 STD MRAM design wins in the second half of 2024. Our persistent industrial STD MRAM product line has demonstrated consistent strength as it has continued to gain momentum in terms of design wins. We continue to expect to begin translating these design wins into revenue starting in the second half of 2024. Turning now to our radiation hard programs that we outlined last quarter. As we noted on our previous calls, we are engaged in two radiation hard programs using our STD MRAM technology, the first related to an ad hoc 64 megabit STD MRAM project and the second aimed at building a strategic radiation hardened FPGA. We expect to continue recognizing revenue from the 64 megabit STD MRAM project over the coming quarters. We successfully executed the deliverables for the strategic radiation hardened 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. As you may have seen, we recently announced that IBM selected our persist one gigabit STD MRAM 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 deployment of STD MRAM in data center storage applications. 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 STD MRAM capacity and improved capabilities. There are other grant opportunities that we are pursuing and hope to be able to share additional details as we move through the year. 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. This slower start 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. Despite these near-term challenges, we expect to begin recognizing revenue from our new STD MRAM 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. We 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 Agarwal, who will take you through our first quarter financials and second quarter 2024 guidance. Anuj.
spk09: 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 toggle and STD MRAM revenue, was 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 STD product for data center applications represented 20% of revenue in the first quarter versus 11% of revenue in Q1 2023. Turning to gross margin, our gap gross margin was relatively flat to Q1 2023 at 56.5%. Gap 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 one cent per diluted share, based on 21.3 million weighted average fully diluted shares outstanding. This compares to net income of 0.8 million, or four cents 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. 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. 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 Radhard 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 14 cents and negative nine cents. We are optimistic for the second half of 2024 as we begin to recognize revenue from our design wins for our STT MRAM products. 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 and 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.
spk08: Operator, you may now open the line for questions.
spk05: Thank you. As a reminder, to ask a question, you'll need to press star one one on your telephone. To withdraw your question, please press star one one again. 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.
spk02: Hey, guys, Nick Doyle on for Quinn. Thanks for taking our questions. A couple housekeeping ones first. For the first quarter, product revenue was down as expected, but did the high-density STT, did that increase quarter over quarter?
spk09: Hi, Nick, this is Anuj. Great question. So from a product perspective, yeah, we did see some softness in toggle as we've had some challenges with industrial. But from an STT data center perspective, that product has been pretty healthy. So it was up in Q4, and it was pretty healthy in Q1 as well.
spk02: Great, and then for OPEX, I mean, what's your other 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?
spk09: 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.
spk02: Okay, and then for the 2Q guide, the guide missed our estimate by about three million. Can you just speak to what drove the miss? Reading through the lines, it just seems like toggles is just a little bit worse, so that products are expected to decline next quarter. And you mentioned Radhard's going down before it goes up. So in that same vein, margins should probably decline as licensing goes down as well. Just any more color on the guide, thanks.
spk08: Yeah, no, I think you're hitting
spk09: 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 data center, that's going pretty healthy, and we expect it to be relatively flat. But then from a Radhard perspective, as you might recall from some of the previous calls, we've been able to close and complete out several Radhard projects. And we're currently in the works on a couple of additional new Radhard projects. So the guide you're seeing today doesn't include any Radhard revenue since we haven't signed anything yet. And so really the decline there is you're seeing the Radhard revenue not being incorporated into Q2.
spk02: Okay, and then last question, I'll jump back in. Just what gives you confidence on the second half ramp? Maybe how much, maybe you can give percent or absolute dollar range, how much of the growth in the back half is coming from the Radhard, thanks.
spk09: Yeah, so I wanna be careful because we don't necessarily give guidance for the full year. But I will say, we're seeing the same macroeconomic challenges everyone else is. So talking about things before, the working capital, we continue to see there's some pressure there from DSTs as they're reducing inventory. From a Japan, China perspective, the yen versus dollar impact and seeing that products are a little bit more costly, because the yen is 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 as we deep dive into our business, there's a couple of things that give us 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 wins. In addition to that, from a licensing perspective, there's several projects that are being worked. They haven't been signed yet, but there's 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 confidence as we look to the full year.
spk00: Thanks.
spk05: 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.
spk10: Well, hi guys, thanks for taking my questions. Maybe follow up on the topic here of Brad Hard. 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 or is there a question as to whether it will continue? Because I think your partner's talked about a program, assuming all the options are picked up to something that lasts on the order of four years and we've got these two years left to go. So just want to get some sense of the visibility in that project and whether this is just a lull between the kind of sub programs within the bigger picture.
spk04: Yeah, hi Richard, thank you for the question. Yeah, you're right. I think we expect the project that we are working on, the strategic radiation hard and FPGA project with our partner, we expect that to get renewed sometime in the next coming months and quarter. 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. So we fully expect to get that project going sometime in Q2 or as soon as the funding comes through. Also Richard, I would like to point out that we did talk about a new toggle MRAM 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.
spk10: Well, I guess I'll follow up on that last part of your comments, Sanjeev, 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 US or other government agency or what's the source of that one?
spk04: 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 record and reliability models that we shared, so we are actually collecting some more data to bring them up to speed on that one. So 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.
spk10: Okay, fair enough. Let me hit 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. Last two quarters have been fairly, significant amount lower, I think in the 40, high 40% range here. Last quarter you talked about it being something related to yield. I'm wondering if that's still continuing, there's any visibility in 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 toggle and SCT in your mix here in the last two quarters?
spk09: Yeah, hi Richard. Great question. Yeah, from a gross margin perspective, the gross margin, again without giving guidance, has been within our internal model. So 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 RadHard 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 RadHard revenue that's being incorporated into the guide. So really the range there is based on 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.
spk03: Okay,
spk10: maybe to follow up on this topic, and I guess I'm very curious specifically on product gross margins here. Should we be viewing these levels that we've seen a number of quarters over the past, looking at the model over the last three years, where you've seen numbers in the mid-50s range. Is that deemed to be abnormally high or the range you aspire to? And then to what degree do we see, as FTT ramps up here, both the high density one and the new low density one that seems to be ramping the second half, is that a level that we can still aspire to or is that gonna be a little bit more difficult?
spk09: I think what we've seen in the past, Richard, is probably a little bit on the high end. There's been, I think, some 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%, right? So there's gonna be some steady state where that kind of tapers off. There is a little bit of flex in terms of the mix. And so as we look at that, there's some challenges there. But if you look at the new low density STT 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 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 improvement in the gross margin from that product.
spk04: It should be aspiration from these, right? Our aspiration is still to be the mid-50s.
spk10: Okay, so that's the number you've talked about in terms of your total gross margins, not product gross margins, correct?
spk07: That's correct. That's
spk10: right. Okay, okay. Fair enough then. Maybe one or two others here. 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?
spk04: Yeah, so 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 actively acting as a foundry. So this is a new customer that we are bringing online. So 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 of this year. And the whole idea of your research is that it's going to lower our, it's going to improve our fab utilization and then lower our, basically distribute our fixed costs over more product.
spk10: Okay, can you elaborate on the product here? Is this a custom product in any way, any sense of application and how big can this customer be relative to your other big customers or your company in total scale?
spk04: 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.
spk10: Okay, that's fair enough then. Maybe just kind of looking big picture at your product business here. Your guidance here for product revenue is being roughly flat is a good sign in the context of what seems like a fairly difficult market for industrial not emotive. To what degree do you think we are, are we 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?
spk09: Yeah, Richard, it's really hard to speculate on where the year is gonna 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 from that we should see some uptake in the second half.
spk03: Okay, fair
spk09: enough. Last question, I'll jump
spk10: on it. Sorry, I just didn't mean to interrupt.
spk09: No, no, no, go ahead, go ahead, Richard.
spk10: Last quick, just quick question for me is this on lead times. I think you mentioned companies now are ordering inside lead time. Are we at lead times to where we're at before COVID on both your toggle and STT products or is that still coming down to those levels?
spk09: So Richard, we've kept the lead times back to the pre-pandemic levels. They're roughly 26 to 27 weeks depending on which level of products you're looking at.
spk07: Okay then,
spk10: I think that's all the questions for me. I'll jump out of line, guys. Thank you. Thank you. Thank
spk04: you, Richard.
spk05: Thank you. As a reminder, to ask a question you'll need to press star one one 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.
spk02: Hey guys, just asking if the product, the product decline this quarter and just assuming it's flat next quarter, was the decline entirely unit-based or is there any ASP, any ASP changes there and then I would just assume both are flat for the next quarter?
spk04: Yeah, Nick, this is Sanjeev. We have not seen any ASP decline. It's mostly the demand of the softness in the Asia Pacific market and the Japan market which is causing the lower volumes.
spk02: Okay, makes sense. And then for the 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?
spk04: So you might've 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.
spk08: Great, thank you.
spk04: Sure.
spk05: Thank you. I am currently showing no further questions at this time. I'd like to hand the conference back to Sanjeev Agarwal for closing remarks.
spk04: I would like to say thank you everyone for joining the call today. And we look forward to speaking to you at our next quarter earnings report. Thank you again for joining.
spk05: This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
spk00: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank
spk05: you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. crowded Re 제대로 moved Mitig women all participants on 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 of Everspun. Please begin.
spk01: Thank you, Operator, and good afternoon, everyone. Everspun 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 Everspun, 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 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 Everspun's future business, financial performance, and goals, customer and industry adoption of MRAM technology, successfully bringing to market and manufacturing products in Everspun'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 material 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 Everspun. 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. 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 Everspun 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 net income to adjust to EBITDA, which provide additional details. A copy of the press release is posted on the Investor Relations section of Everspun's website at .everspun.com. And now I'd like to turn the call over to Everspun's President and CEO, Sanjeev Argulwal. Sanjeev, please go ahead.
spk04: 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 gross margin of .5% in the first quarter compared to .8% in Q1 2023. We ended the year with a cash balance of $34.8 million. We are pleased by the progress we have made over the past few years with our toggle MRAMP solution, and as we continue to ramp up our lower density products, we will have increased visibility for our STT MRAMP solutions. 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 STT MRAMP design wins in the second half of 2024. Our persistent industrial STT MRAMP product line has demonstrated consistent strength as it has continued to gain momentum in terms of design wins. We continue to expect to begin translating these design wins into revenue starting in the second half of 2024. Turning now to our radiation hard programs that we outlined last quarter. As we noted on our previous calls, we are engaged in two radiation hard programs using our STT MRAMP technology, the first related to an ad hoc 64 megabit STT MRAMP project, and the second aimed at building a strategic radiation hardened FPGA. We expect to continue recognizing revenue from the 64 megabit STT MRAMP project over the coming quarters. We successfully executed the deliverables for the strategic radiation hardened 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 MRAMP reliability project for radiation hard applications that we originally executed in the third quarter of 2023. As you may have seen, we recently announced that IBM selected our persist 1 gigabit STT MRAMP 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 deployment of STT MRAMP in data center storage applications. 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 STT MRAMP capacity and improved capabilities. There are other grant opportunities that we are pursuing and hope to be able to share additional details as we move through the year. 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. This slower start 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. Despite these near-term challenges, we expect to bring in recognizing revenue from our new STT MRAMP 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. We 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 Agarwal who will take you through our first quarter financials and second quarter 2024 guidance. Anuj?
spk09: 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 toggle and STT MRAM revenue, was $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 STT product for data center applications represented 20% of revenue in the first quarter versus 11% of revenue in Q1 2023. 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. 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. 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 Radhard 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. We are optimistic for the second half of 2024 as we begin to recognize revenue from our design wins for our STT MRM products. 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 and markets. As the industry navigates some near-term challenges, we remain focused on growing our toggle MRM and DRAM products and recognizing revenue for our STT MRM technology.
spk08: Operator, you may now open the line for questions.
spk05: Thank you. As a reminder, to ask a question you'll need to press star 1-1 on your telephone. To withdraw your question, please press star 1-1 again. 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.
spk02: Hey guys, Nick Doyle on for Quinn. Thanks for taking our questions. A couple housekeeping ones first. For the first quarter, product revenue was down as expected, but did the high density STT, did that increase quarter over quarter?
spk09: Hi Nick, this is Anuj. Great question. So from a product perspective, yeah, we did see some softness in toggle as we've had some challenges with industrial. But from an STT data center perspective, that product has been pretty healthy. So it was up in Q4 and it was pretty healthy in Q1 as well.
spk02: Great. And then for OPEX, I mean, what's your other 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?
spk09: 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.
spk02: 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? I mean, reading through the lines, it just seems like toggles is just a little bit worse so that products are expected to decline next quarter. And you mentioned RadHard's going down before it goes up. So in that same vein, margins should probably decline as licensing goes down as well. Just any more color on the guide. Thanks.
spk08: Yeah, I think you're
spk09: 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 data center, that's going pretty healthy and we expect it to be relatively flat. But then from a RadHard perspective, as you might recall from some of the previous calls, we've been able to close and complete out several RadHard projects. And we're currently in the works on a couple of additional new RadHard projects. So the guide you're seeing today doesn't include any RadHard revenue since we haven't signed anything yet. And so really the decline there is you're seeing the RadHard revenue not being incorporated in the Q2.
spk02: Okay. And then last question, I'll jump back in. Just what gives you confidence on the second half ramp? Maybe how much, maybe you can give percent or absolute dollar range. How much of the growth in the back half is coming from the RadHard? Thanks.
spk08: Yes,
spk09: 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 DSTs as they're reducing inventory. From a Japan-China perspective, the yen versus dollar impact and seeing that products are a little bit more costly, right? Because the yen is 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 as we deep dive into our business, there's 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 wins. In addition to that, from a licensing perspective, there's several projects that are being worked. They haven't been signed yet, but there's 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 confidence as we look to the full
spk08: year.
spk05: Thanks. 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.
spk10: Hi, guys. Thanks for taking my questions. Maybe follow up on the topic here of Brad Hardt. 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 of four years. And we've got these two years left to go. So I just want to get some sense of the visibility in that project and whether this is just a lull between the sub programs within the bigger picture.
spk04: Yeah, I think that's a good question. Yeah, you're right. I think we expect the project that we are working on, the strategic radiation hard enough PGA project with our partner. We expect that to get renewed sometime in the next coming months and quarter. The reason for the delay is that there has been some delay from the U.S. 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. So we fully expect to get that project going sometime in Q2 or as soon as the funding comes through. Also, Richard, I would like to point out that we did talk about a new toggle MRAAM 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.
spk10: Well, I guess I'll follow up on that last part of your comments, Sanjeev. 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 U.S. or other government agency or what's the source of that one?
spk04: 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 one. So in terms of scale, it won't be as big as it was in 2023. But we don't have the financial figures yet to disclose.
spk10: Okay, fair enough. Let me hit 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. Last two quarters have been fairly, you know, a significant amount lower, I think, in the high 40s percent range here. Last quarter you talked about it being something related to yield. I'm wondering as to if that's still continuing, if there's any visibility in 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 toggle and SCT in your mix here in the last two quarters?
spk09: Yeah, hi Richard. Great question. Yeah, from a gross margin perspective, the gross margin, again without giving guidance, has been within our internal model. So 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 RadHard revenue that we saw in Q1. And so that's normally higher margins, somewhere between 70 to 90 percent gross margin. In Q2, like we mentioned, there's no RadHard revenue that's being incorporated into the guide. So really the range there is based on 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.
spk03: Okay.
spk10: Maybe to follow up on this topic, and I guess I'm very curious specifically on product gross margins here. Should we be viewing these levels that we've seen a number of quarters over the past, we're going to model over the last three years, where you'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, as STT ramps up here, both the high density one and the new low density one that seems to be ramping the second half, is that a level that we can still aspire to or is that going to be a little bit more difficult?
spk09: I think what we've seen in the past, Richard, is probably a little bit on the high end. There's been, I think, some 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. And so as we look at that, there's some challenges there. But if you look at the new low density STT 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 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 improvement in the gross margin from that product.
spk04: Richard, the aspiration is still to be the mid fifties.
spk10: OK, so that's the number you've talked about in terms of your total gross margins, not product gross margins, correct?
spk07: That's correct. That's
spk10: right. OK, OK. Fair enough then. Maybe one or two others here. I think you said in your press release here something about a foundry agreement here, and I'm not sure if I caught anything in your prepared remarks around that. Can you elaborate on what that is?
spk04: Yeah, so as you know, we've actually been a foundry for several radiation heart programs and also in the past to 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. So 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 of this year. And the whole idea of your research 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 cost over more product.
spk10: OK, can you elaborate on the product here? Is this a custom product in any way, any sense of application? How big can this customer be relative to your other big customers or your company in total scale?
spk04: 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.
spk10: OK, that's fair enough then. Maybe just kind of looking big picture at 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 not emotive. To what degree do you think we are, are we 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?
spk09: Yeah, Richard, it's really hard to speculate on 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, you know, from that we should see some uptake in the second half.
spk00: OK, fair
spk09: enough. I'll jump
spk10: on all. Sorry, I didn't mean to interrupt.
spk09: Go ahead,
spk10: Richard. Last question, just a quick question for me is this on lead times. I think you mentioned companies now are working inside lead time. Are we at lead times as you were at before COVID on both your toggle and STT products or is that still coming down to those levels?
spk09: So, Richard, we've kept the lead times back to the pre-pandemic levels. They're roughly 26 to 27 weeks, depending on which products you're looking at.
spk07: OK, then
spk10: I think that's all the questions for me. I'll jump on like my guys. Thank you. Thank you.
spk07: Thank
spk04: you.
spk05: 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.
spk02: Hey, guys. Just asking if the product, the product decline this quarter and just assuming it's flat next quarter, is that correct? Is that was a decline entirely unit based or is there any ASP any ASP changes there? And then I would just assume both are flat for the next quarter.
spk04: Yeah, Nick, this and we have not seen any ASP decline. It's mostly the demand of the softness in the Asia Pacific market and the Japan market, which which is causing the the lower volumes.
spk02: OK, makes sense. And then for for the persist with IBM, could you I mean, I know it's early, but could you size that opportunity or give us any any hints in terms of timing?
spk04: So you might have seen the press release from us as well as IBM. They actually did launch their FCM four already, so it's available in the marketplace today. And in terms of our backlog, like I 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.
spk08: Thank you. Sure.
spk05: Thank you. I am currently showing no further questions at this time. I'd like to hand the conference back to Sanjeev Agarwal for closing remarks.
spk04: I would like to say thank you, everyone, for joining the call today. And we look forward to speaking to you at our next quarter earnings report. Thank you again for joining.
spk05: This concludes today's conference call. Thank you for your participation. You may now disconnect. Everyone have a wonderful day.
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