Netlist Inc

Good day and welcome to the NETLIS first quarter 2022 earnings conference call and webcast. All participants will be in a listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your touchtone phone. And to withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Mr. Mike Smarjasi, with the Plunkett Group. Please go ahead, sir.

Thank you, and good morning, everyone. Welcome to NetList's first quarter 2022 conference call. Leading today's call will be Chuck Hong, Chief Executive Officer of NetList, and Gail Sasaki, Chief Financial Officer. As a reminder, the earnings release and a replay of today's call can be accessed on the Investors section of the NetList website at netlist.com. Before we start the call, I would note that today's presentation of NETLIS results and the answers to questions may include forward-looking statements, which are based on current expectations. The actual results could differ materially from those projected in the forward-looking statements because of the number of risks and uncertainties that are expressed in the call, annual and current SEC filings, and the cautionary statements contained in the press release today. NETLIS assumes no obligation to update forward-looking statements. I would now like to turn the call over to Chuck.

Thanks, Mike. And hello, everyone. First quarter was highlighted by solid momentum across the business as product revenue more than tripled over Q1 2021 and gross profit dollars more than doubled over last year's first quarter. The expansion of revenue and profitability is helping to support targeted investments, which will help drive future growth of the business. As an example, we increased headcount by 40% compared to last year's quarter to support our strategic initiatives across our business, including R&D, licensing, and sales and marketing. Before I get into the product update for the quarter, I would like to provide some context on the current market environment. which may help inform the outlook for our business in the quarters ahead. The memory market is relatively stable with both positive and negative factors weighing in and in some cases offsetting one another. PC and mobile demand have softened due in part to the slowdown in consumer demand for IT, particularly in China. On the other hand, Server demand from enterprise and data centers remain robust, and analysts expect this to continue through the end of the year. On the supply side, the recent Keoxia FAB contamination, the COVID-related shutdowns in China, and the war in Ukraine have impacted the supply chain for memory products. Despite this, the current supply of DRAM and NAND components remain relatively stable for mainstream computing markets. In the long run, we believe that the scaling of DRAM technology will be more difficult and expensive, and the limited availability of high-end equipment such as EUV will keep DRAMs from reverting to the boom and bust cycles of the past. NAND, on the other hand, with six global suppliers and with more technical headroom to scale, is likely to experience greater volatility. We are closely all of these variables, but remain cautiously optimistic given the supply chain relationships we now have in place. Turning now to the product discussion, in Q1, the bulk of revenue and gross profit dollar growth was the result of the expanded relationship with SK Hynix. During the first full year of the Hynix product supply agreement, we have gained a meaningful understanding of their product line and operations and have begun to capitalize on this knowledge to further broaden NETLIS' product offerings. We are particularly optimistic about the growing customer base in military, aerospace, and industrial segments, which we can more readily address with access to Hynix's raw materials. We also continue to expand the markets for NETLIS-branded enterprise SSD products executing on key qualifications with OEMs and ODMs. Netlist SSD products, together with product supply from SK Hynix and Samsung, enables us to consistently serve and supply a broad array of markets and customers. Moving now on to intellectual property, we are making steady and methodical progress in enforcement actions. Netlist's action against Micron recently moved to the Austin Court in the Western District of Texas with a tech tutorial and claim construction hearing set for May 12th. This will be an important milestone in the case as the court will determine the definitions of key patent claims as it relates to infringing products. We also filed a suit in March against Micron in Germany, asserting our European patents, EP735 and EP660, which read on the Micron LR demo. Netlis' patent infringement action against Samsung in the Eastern District of Texas. Samsung filed its response to Netlis' complaint on April 12th, and we now have a scheduling conference set before the court on May 18th. upon which the court will set key dates, including those for trial. In Delaware, we are waiting for the court to respond to Netlis' request for an oral hearing on our motion to dismiss Samson's petition. The Delaware court may grant Netlis' request or may issue an order from the bench. In the Google case, we found Chief Judge Seaborg's questions and comments during the March 3rd hearing on intervening rights to be encouraging. The judge was thorough and gave netlist time to explain its position and entertain arguments regarding the pendency of all claims in dispute under the 912 patent. We await the court's ruling where we also expect to receive an order calling for another case management conference that will set a concrete schedule for this case to proceed to a jury trial. Our enforcement actions should make clear that NETLIS is taking a broad, multi-pronged approach designed to bring the largest industry implementers into compliance with the law. We are working both domestically and internationally, pursuing actions involving broad array of patents across various jurisdictions against multiple parties, all in an effort to promote fair licensing of METLIS' unique technologies. Finally, we remain active on the patent prosecution front, and in January were awarded a new patent, the 054, that relates to power management on DDR5 modules. We believe that this patent covers a very important technological improvement for DDR5 memory. I'll turn the call over to Gail for the financial review.