Everspin Technologies, Inc.
Q4 2020 Earnings Call Transcript

Published: 28 Feb 2021

[Operator:]

Good afternoon, and welcome to the conference call to discuss Everspin Technologies' preliminary, unaudited fourth quarter and full-year 2020 financial results. At this time, all participants are in listen-only more. 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, Thursday, February 25, 2021. 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, our expectations for Everspin's future business, financial performance, and goals; customer and industry adoption of MRAM technology, successfully bringing to market and manufacturing products in Everspin's design pipeline; and executing on its business plan.

[Darin Billerbeck:]

Thank you, Suzanne, and thanks to everyone for joining us on the call today. Q4 revenue came in below guidance, as our distributors managed their inventory mix. Our current distributed inventory remains at a healthy range of 8 to 10 weeks. Even with that, our revenue Q4 '20 was up 3% over Q4 '19. More importantly, we generated positive cash flow for the second quarter in a row. For 2020, revenue was up 12.1%, due to strong first half growth of our Toggle MRAM, primarily before the pandemic took hold, along with high-growth for our STT-MRAM across the entire year. As mentioned in our last earnings call regarding Q3, the demand from industrial applications for our MRAM products remains soft, due to the ongoing pandemic affecting worldwide factory demand and new product rollouts. Unfortunately, we don't play significantly in any of the 2020 growth markets, such as smartphones, PC, AI, and the 5G rollout. We did see improvement in our Q1 '21 starting backlog for our industrial customers and expect Q4 to have been our low point.

[Daniel Berenbaum:]

Thank you, Darin, and good afternoon, everyone. Today, as usual, I'll focus my discussion on GAAP financial results, and I'll also highlight some important cash flow metrics. Revenue for the fourth quarter of 2020 was $10 million, compared to $10.1 million last quarter and $9.7 million in the fourth quarter of 2019. MRAM product sales in the fourth quarter, which includes both Toggle and STT-MRAM revenue, was $9.7 million, flat from the prior quarter and up slightly from $9.2 million in the fourth quarter of 2019. Licensing, royalty, and other revenue in the quarter contributed $0.3 million, compared to $0.5 million in the prior quarter and $0.5 million in the prior-year period. The decline in that revenue was due to lower foundry revenue, MRAM manufacturing that we complete for some of our highly specialized customers on their products, generally using our intellectual property, which we have previously licensed to them.

[Darin Billerbeck:]

Thanks, Dan. In summary, we continue to build towards a future of profitable growth. We believe the bottom of Toggle revenue is behind us. We anticipate increasing our market penetration for our high-density STT-MRAM products for the data center, both at our top customer as well as others, as we move through the next years. We are on track to tape out our low-density STT-MRAM product targeted at industrial customers and NOR replacement in the middle of this year, and we will continue to monetize our IP with the Rad-Hard STT-MRAM license we mentioned beginning the next step, with more to come. Operator, you may now open the lines for questions.

[Operator:]

First question comes from the line of Michael Weber from FRT. Your line is now open.

[Unidentified Analyst:]

Thank you. Hi, guys. I appreciate the opportunity to ask a couple of questions here. The first one, I know that in the past, the business has moved a little bit away from the automotive business. I'm just curious, with some of the recent developments in the EV space, is that if you're getting any renewed interest there, specifically with respect to - I know there was a large recall with one of the - with Tesla, 150,000 of their NAND chips were defective. It just seems like it would be a good application for MRAM.

[Darin Billerbeck:]

No, it absolutely is. This is Darin, by the way. It absolutely is a great opportunity for us, specifically because our products have extended temperature ranges. And what we're finding is, there's kind of two different models in the cars. One is obviously under the hood or near the battery, and the other one is in the cabin.

[Unidentified Analyst:]

Okay. Great. Just real quick, you mentioned that design wins doubled year-over-year. Do you have the actual figure for Q4? Or will that be in the Q or the K?

[Darin Billerbeck:]

It should be - that should be in the K. That information will be available in the K.

[Unidentified Analyst:]

Okay. Great. And just one quick question. Can you comment on the progress on taping out of ASIC this year?

[Darin Billerbeck:]

You mean the ASIC related to the 1 gig STT product for data center?

[Unidentified Analyst:]

That's correct.

[Darin Billerbeck:]

So nothing new to report. As we've discussed before publicly, we are working with partners on getting that taped out and getting qualified on that. So nothing else to report. We still do plan on having that done this year. And hopefully, we'll be able to talk about that a little bit more next quarter.

[Unidentified Analyst:]

Okay, great. Thanks for taking my question.

[Darin Billerbeck:]

Thank you, Mike.

[Operator:]

Our next question comes from the line of Denis Pyatchanin from Needham Company. Your line is now open.

[Denis Pyatchanin:]

Hi, everyone good evening. I'm here to ask a few on behalf of Raji Gill. If you don't mind, could you tell us a little bit more about that inventory buildup you guys reported back in November for the data center customers? What's the latest on the demand front there? And has the inventory been moving? And how are the kind of supply chain kind of constraints in the industry currently impacting you?

[Darin Billerbeck:]

So let me jump - we'll answer the first question. So, as far as an inventory buildup, we did see a slight buildup as we were walking through the year. We do expect to burn that off the middle of this year, so you'll start to see the second half a lot more balanced. The big concern we have is these are long lead items, so having a little inventory doesn't really hurt you in that standpoint. So we're comfortable with the inventory position that we currently have.

[Denis Pyatchanin:]

How are the supply chain constraints that are currently in the industry kind of impacting you guys from the wafer supply, et cetera? Is that impacting you, or are you seeing any issues there?

[Darin Billerbeck:]

Well, it's impacting everyone, because you're starting to see a lot of these consumer and also the data centers, you're starting to see some pretty big ramp-up, and some of the capacity is getting utilized at full tilt, which is good for the foundries. But everyone's struggling to get their fair share, and as a small supplier, typically, we're not as impacted as the bigger suppliers, because we're in the noise. So we will see some constraints, as we mentioned, but we're able to pound our way through because, again, a few wafers here or there are not a big deal when people are asking for hundreds of lots. So I think in that case, we're protected. The note that I did bring up in the earnings that there are people out there opportunistically raising prices, and we're concerned of that than anything. Because, again, that can negatively impact our gross margins if our costs go up. But so far, we've been able to mute any of that pretty effectively.

[Daniel Berenbaum:]

And let me elaborate just a little bit. Our - obviously, our large foundry partners are great partners for us. And I know that in a situation where supply across the board is tight, they are working hard to get us, and everyone else, all the wafers that they need, so we're fortunate to have sort of strong foundry partners there. I will say that the opportunistic price increases that we are seeing for some of our other suppliers, and right now, we're working through that, but it's definitely something for us to keep an eye on as we go through the year.

[Darin Billerbeck:]

And specifically, the assembly test houses.

[Denis Pyatchanin:]

I see, and so it's specifically, the assembly and test houses that are raising some of the prices?

[Daniel Berenbaum:]

Yes, we've seen assembly and test; we've seen a little bit on the material side as well.

[Denis Pyatchanin:]

Got it. Thank you. And then, is there anything more that you can share about kind of the STT-MRAM kind of pipeline? So I think you mentioned that you started shipping in Q3, and now we have the Rad-Hard license that's in the pipeline as well. Is there anything more? How are some of the kind of older contracts going? And is there anything else you can share both the STT-MRAM product?

[Darin Billerbeck:]

Well, we've been shipping the STT-MRAM product for years, so it's not new. I think shipping it into the data center, we've been doing that consistently. The Rad-Hard program that we're discussing, that would be new, and that will take time. As we talked about a little bit, I think we've talked about that in the past, Rad-Hard is typically a long design product, but it's also an extremely long-running product. Not particularly high volumes, but it can be lucrative, which is why we engage in it. And it's a very extended temperature and extreme conditions, so it's one that, for us, it's part of our strategy, both short and long term, so we expect to try to sign more of those agreements through time.

[Daniel Berenbaum:]

And, Denis, to kind of put a little bit more perspective as well, I think when we talked about in Q3, we talked about shipping to our second high-density STT-MRAM customer. So we've been shipping the high-density STT-MRAM to our lead customer for quite some time, both in the 256 MEG as well than the 1 gig densities. So this STT-MRAM project that we're talking about now on the Rad-Hard project, we've been doing Rad-Hard on Toggle for many years. This is our first Rad-Hard project using the STT technology, so that's yet another application of the STT technology. We've talked about taping out our next STT product. That will be a little bit lower density than the high-density stuff we're doing for data center, and that's what eventually gets geared towards more industrial markets, as well as NOR replacement. So the message there is, we've been shipping STT for quite some time. We have the industry-leading STT technology. This is the best MRAM technology out there, we believe. And there are multiple applications for it, ranging from data center to Rad-Hard to eventual NOR replacement.

[Denis Pyatchanin:]

That's all for me. I think, actually, Roger has just joined the line, so I think he has a few of his own. So I'm going to jump back in the queue and let Raji ask the next ones.

[Daniel Berenbaum:]

We're happy to take questions from either you or Raji. No problem, Denis. Thank you.

[Operator:]

Next question comes from the line of Raji Gill from Needham & Company. Your line is now open.

[Rajvindra Gill:]

Yes, thanks guys. Thanks for taking my questions. I appreciate it. And sorry I joined a little bit late. I was just on a previous call. So you had mentioned that the company had - part of the strategy of the company was trying to looking to standardize the interface, particularly around ASIC and MRAM-enabled SSDs, to allow easier integration for customers. And this will be done by partnering with ASIC developers, particularly on the higher end of the product. So I was just wondering if of kind of can update us in terms of how that process is going in terms of the partnerships, trying to develop the ecosystem of MRAM in order to try to generate a higher proliferation of MRAM. Thank you.

[Daniel Berenbaum:]

Yes, Raji, thanks for the question. And so, I was going to say it's okay to jump on late. That question was actually asked a bit earlier, though, so I'm going to give you some grief for it. But the short answer is, we don't have anything to update now. We continue to work with our partners. We do expect to have that ASIC, to be qualified on that ASIC this year, and we should have more to update on that over the coming months, if not on the next quarter's earnings call. It is still a very important focus for us.

[Darin Billerbeck:]

Yes. And in addition to that, all of our future products will have standard interfaces all the way across the board, so we don't plan on having anything that would - or disable people from drop-in compatibility.

[Rajvindra Gill:]

Okay. Got it. And on the - you're talking about MRAM in the data center, and it's really all about cashing. And so, just curious in terms of kind of kind of the enhanced capabilities of MRAM in the data center and kind of what value that your customers are starting to see as they start to now come up with a few iterations of MRAM in their products.

[Darin Billerbeck:]

Yes. You nailed it. It's about cashing in high-performance, and the highest performance in the data center is provided by that technology and the architecture. So it's a combination of what we provide from both the right speed and an endurance perspective, but it's also a combination of how they parallelize the architecture. And that's the fastest speed drives, or fastest speed drives that are in the marketplace today, so that's what we focus on. And there are going to be commodity that are competition that you compete against, but they're not the performance segment of the market. So we're targeted primarily at the highest-end performance end of that data center market.

[Rajvindra Gill:]

Okay, thank you.

[Operator:]

I am showing no further questions at this time. I would like to turn the call back to Daniel Berenbaum.

[Daniel Berenbaum:]

Great. Thanks, Suzanne. So, with that, we conclude today's call. Thank you all for joining us. We look forward to reporting our progress and the next quarter's results in our next quarter's call. Suzanne, you can now disconnect the call. Thank you.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.