Netlist Inc

Good day, and welcome to the NETLIST fourth quarter 2023 earnings conference call and webcast. All participants will be in 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 a question and answer session. Please note, today's event is being recorded. I would now like to turn the conference over to Mike Svarjazny of the Plunkett Group. Please go ahead.

Thank you, Rocco, and good day, everyone. Welcome to NETLIS' fourth quarter 2023 conference call. Leading today's call will be Chuck Hong, Chief Executive Officer of NETLIS, and Gail Sasaki, Chief Financial Officer. As a reminder, you can access the earnings release and a replay of today's call on the investor section of the NETLIS website at netlis.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 today's press release. NETLIS assumes no obligation to update forward-looking statements. I will now turn the call over to Chuck.

Thanks, Mike. And hello, everyone. We saw a promising uptick in the fourth quarter as product revenue improved to $33 million, an increase of 100% on a sequential basis, and a 54% increase over Q4 2020. The memory market continues to rebound, and Netlis is benefiting from the improved demand environment. Pricing has strengthened for DRAM and NAND products, including SSDs, with price increases of more than 100% since the fall of 2023 for some products. These market dynamics are continuing into this year, and we expect to see further gains in product revenue throughout 2024. Fueling this growth is the normalization of customer inventory and the industry's transitions to advanced technologies, which is driving a new server demand cycle. This includes volume production of DDR5 memory-based platforms and the need for high-bandwidth memory, or HBM, to power the explosive rise in AI applications. These trends are fundamentally transforming the memory landscape, setting the stage for a new cycle of growth and presenting netlists with major opportunities from both a product and IP standpoint. As you know, Netlist has been at the forefront of the industry, developing next-generation memory technology and backing its innovations with a strong patent portfolio. This approach is complemented by the Strategic Supply Agreement with SK Hynix, which enables us to meet growing customer demand. Together, these product and licensing strategies put Netlist in a strong position to continue to benefit from the memory market turnaround. On the legal front, Netlis made significant progress in 2023 on his efforts to defend and fairly license its intellectual property, including the Eastern District of Texas jury award of $303 million in the case against Samsung, favorable rulings from German courts in cases against Samsung, and some mixed results at the PTAB. 2024 is set to be another active year with what we expect will be multiple patent infringement jury trials. The case in the Eastern District of Texas before Chief Judge Gilstrap addresses Micron's infringement through the sale of its DDR5 DIMMs and HBM components. Some of the same patents and product types that were at issue in our successful April EDTX trial against Samsung. Heading into this trial, we received a favorable claim construction order that provides a strong foundation for NETLIS' ability to prove infringement and validity against Micron. This case was reassigned from its original January start date, and Judge Gilstrap recently issued a limited stay, citing his limited judicial resources, pending the IPR results of NETLIS' 060 and We expect a decision from the PTAB on those IPRs by or before April 12th. Our team is ready and we look forward to presenting our infringement case to a jury. NETLSIS expects two additional Eastern District of Texas jury trials later this year. The second set of EDTX jury trials involved Netlist's consolidated case against Samsung and Micron under our 912 patent and multiple LRDM patents. This consolidated case continues to move forward with a pretrial conference set for March 11 and a jury trial start date currently set for April 15, 2024. This consolidated case involves the infringement of large volumes and significant dollars worth of DDR4 RDEMs and LRDEMs. The case is progressing, despite Samsung and Micron's renewed efforts to delay the proceedings with new stay motions. Netlist's team secured favorable claim constructions at the end of last year, in this case, winning arguments for almost every term in dispute. While the case is currently consolidated and set for a joint trial on April 15th, we expect the court to separate it into two cases that will each go to trial sometime in 2024. Netlist's third case against Mike Rahn in the Western District of Texas was reassigned to the General Austin, Texas Judicial Docket No. 2 last year upon the retirement of Judge Yackel. It is not currently set for trial. But Judge Robert Pittman recently requested the parties to provide a status update by February 21st, where we plan to highlight the fact that two of our assertive patents there were found patentable by the Patent Trial and Appeals Board. As a reminder, this case involves netless patents covering Micron's DDR4 LR DEMs and was filed in 2021. Regarding the Samsung California contract breach case, this case was remanded to the U.S. District Court of the Central District of California following the split decision, split ruling by the U.S. Court of Appeals. Central District Court Judge Mark Scarzi directed both parties to submit additional briefing in light of the Ninth Circuit remand and held a summary judgment hearing on February 5th. At the hearing, Judge Scarzi set the matter for a fast jury trial date of March 26th. As I've mentioned before, we haven't yet been able to fully bring all of the Samsung's past actions to light before a jury, so we are eager to be able to do so in this upcoming trial next month. Turning to NETLAS's April 23rd, April 2023 win against Samsung and the Eastern District of Texas. Post-judgment issues have been fully briefed by the parties, and we are waiting for Judge Gilstrap to issue his final order. As noted previously, our jury verdict confirmed Samsung's willful infringement and set an implied royalty rate. Beyond the accrual of interest on our judgment, we hope to see a favorable outcome from the court on our motion for an ongoing royalty which would confirm that Samsung's ongoing infringement would be automatically subject to the defined per unit rate we obtain at trial. Related to this case, we have filed requests for rehearing before the PTAB on the results of the inter-party's review of Netlist 339, 918, and 054 patents that read on LRDEM and DDR5 power management. These three patents were asserted as part of Netlist's April 2023 jury trial against Samsung. Netlist awaits reconsideration of these decisions, and if denied, will have the option to file a notice of appeal within 63 days. Netlist's action in Germany against Samsung, Micron, and Google continue to move forward. The German Federal Patent Court is expected to hold oral hearings on the validity of NETLIS' asserted European patents in March 2024 for EP 735 and in July 2024 for EP 660. As a reminder, NETLIS needs a favorable ruling on only one of these patents to move forward with its request for an injunction before the German Dusseldorf Court. Looking ahead to 2024, we see a memory market that is going to have an exceptional year, driven by growth in demand and a strong pricing environment. The transition to new DDR5-based servers and high bandwidth memory for AI are creating a huge demand for products that require netlessness technology. These market dynamics highlight the key role of netlessness technology and that it will play in the future of the memory industry and underscore the importance of remaining vigilant in enforcing our IP rights. Now, I will turn the call over to Gail for the financial review.