Netlist Inc

Good afternoon, and welcome to the NETLIST third quarter 2024 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. Please note, this event is being recorded. I would now like to turn the conference over to Mike Smarjasi, investor relations. Please go ahead.

Thank you, Gary, and good day, everyone. Welcome to Netlist's third quarter 2024 conference call. Leading today's call will be Chuck Hong, Chief Executive Officer of Netlist, 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 Netlist website at netlist.com. Before we start the call, I would note that today's presentation of Netlist 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 obligations to update forward-looking statements. I will now turn the call over to Jack.

Thanks, Mike, and hello, everyone. Netlist delivers strong revenue growth in a quarter, driven by the turnaround in the memory market from a year ago period. We continue to work with our partners and leverage our five-year, $600 million supply agreement with SK Hynix to bring new value-added products to our customers. We recently introduced an ultra-low latency memory product line called Lightning for workstations and servers, that delivers double-digit percentage improvement in memory performance without any changes to the system, both AMD and Intel-based. This allows customers with demanding workloads and AI inference, high-frequency trading, and in-memory database to accelerate application performance with minimal additional costs. With a projected 2025 DDR5 server market of greater than $25 billion. The market for ultra-low latency RDEM memory is expected to exceed $250 million starting next year. We're also developing our next generation CXL NVDEM, or non-volatile DEM, that we invented more than a decade ago. The CXL NV is a persistent NAND memory solution that allows server and storage customers to back up critical DRAM data within seconds in the event of a power outage. Although many customers that utilize first-generation NV DEMs shifted to an Intel product called Optane, that product is now end of life and will stop shipping at the end of 2025. So these customers cannot implement rack-level battery backup systems to safeguard the data that must be stored at DRAM speeds. So they therefore are looking to utilize CXL NVDEM and their new platforms for backup. The CXL NV market opportunity is expected to start next year at around $200 million and grow from there. Moving to IP. NETLIS continues to make significant progress. As a reminder, NETLIS has secured nearly three quarters of a billion dollars from two patent infringement jury awards in the past 18 months, an amount that is among the largest in the semiconductor industry during this period and highlights the tremendous value of NETLIS's intellectual property. Each of these awards was granted as a reasonable royalty for infringement for past damages period of around only 18 months. Given that Samsung and Micron continue to infringe these and other netless patents, and there's been explosive production ramp of these covered products, there is significant and growing exposure. We believe these dynamics place us in a strong position to monetize these verdicts. On November 12th, Upcoming, we will commence the jury trial in the Eastern District of Texas for patent infringement in a second case against Samsung, which was first brought in late 2022. In this case, Netlist is asserting that Samsung has infringed three Netlist patents. The 912 and the 417 patents are related to the infringement of large volumes of DDR4 RDEMs and LRDEMs. These are the same patents that were the subject of the May 2024 Micron trial, where the jury handed down $445 million in damages award to Netlist. Netlist is also asserting the 608 patent in this case, which reads on LRDEM technology, but in a different way than the 417. The 608 patent was already found valid in the IPR filed by Micron in the currently state Western District of Texas case. Samsung has filed its own IPR against the 608 patent, and the final written decision from the PTAB on this IPR is due early December. In NETLESS's first Eastern District of Texas case against Samsung, in which the trial took place in April 2023, the court recently upheld the jury's verdict and award of $303 million in damages, confirming that Samsung willfully infringed Netlis' patented technologies and that none of the asserted claims are invalid. With a court order denying post-trial motions and the final judgment entered in August 2023, This case is closed in the district court. As expected, Samsung has filed an appeal of this ruling with the Federal Court of Appeals. Opening briefs are due in December, with final briefs currently scheduled for February 2025. Importantly, nutless patents asserted in this first Samsung case cover high bandwidth memory, or HBM, and DDR5 memory, both critical to generative AI. and continues to grow at an exponential rate. Industry analysts are expecting DDR5 memory to reach nearly $30 billion in annual revenues in 2026 and HBM to hit $80 billion in annual sales in 2026, a nearly fourfold increase from 2024. Now, moving on to appeals. As the district court verdicts and IPR decisions move into the appellate phase of litigation, some of these cases are now in front of the Federal Circuit Court of Appeals. Although the IP enforcement campaign may seem endless, it is a well-defined, finite process and there is an end. We are now at the beginning of the end phase in some of these cases. The front end of the campaign, which takes place in federal district courts and the USPTO, can take up to three years or more to fully wrap up, and they represent the bulk of the time and money spent in the campaign. By contrast, the appeals at the Federal Circuit usually take about half the time and fraction of the cost. We currently have eight IPRs in the pipeline. I'm sorry, we currently have eight IPR appeals in the pipeline involving 11 netless patents. For each appeal, the Federal Circuit process is expected to take approximately 18 months. We expect oral hearings in six of these appellate cases to be conducted in 2025. the appeal of the First Eastern District of Texas jury verdict against Samsung and the companion IPR appeals for the patents that produce that jury verdict will likely be held at the same time at the end of 2025. After the ruling by the Federal Circuit, the parties have the option to appeal to the Supreme Court, but it is unlikely that any of these district court rulings or IPR decisions will be picked up by the Supreme Court. So the Federal Circuit is where the road ends for all practical purposes in these cases. In the event NETLIS is able to reverse any of the negative IPR findings involving patents associated with any of these jury awards and the jury verdicts are upheld on appeal, it would result in a forced collection action likely in the nine figures. Such a collection would be immediate upon a rejection of a certiorari to the Supreme Court and include damages plus accrued interest as specified in the jury verdict. Leading Netlis' effort in these appeals are appellate specialists Molo Lamkin and Stern Kessler. Both firms are located in Washington, D.C., and are among the leading appellate practitioners in the country. Now I'll turn the call over to Gail for the financial review.