Good afternoon, and welcome to Everspin Technologies' first quarter 2019 financial results conference call. At this time, all participants are in a listen-only mode. 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, Wednesday, May 8, 2019. I would now like to turn the call to Brett Perry of Shelton Group Investor Relations. Brett, please go ahead.
Good afternoon, and welcome to Everspin Technologies' first quarter 2019 earnings conference call. I'm Brett Perry, vice president at Shelton Group, Everspin's investor relations firm. Joining me today are Kevin Conley, Everspin's President and CEO, and Jeff Winzeler, Chief Financial Officer. 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, executing on its business plan. These forward-looking statements are based on estimates, judgments, current trends and market conditions, 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 our SEC filings, including the 2018 Form 10-K filed with the SEC on March 15th, 2019, other SEC filings made from time to time, in which we may discuss risk factors associated with investing in Everspin. All forward-looking statements are made as of the date of this call, except as required by law, we do not intend to update this information. This conference call will be available for audio replay for at least 90 days in the investor relations section of Everspin's website at www.everspin.com. Now I'd like to turn the call over to Everspin's President and CEO, Kevin Conley. Kevin, please go ahead.
Thank you, Brett. Good afternoon to those joining us on today's call. Everspin executed well in the first quarter of 2019, delivering results above guidance under challenging market conditions. The first quarter results represent the new baseline upon which we're building our future growth. I'd like to start with some important STT-MRAM updates, the first of which is that IBM, our largest STT-MRAM customer, announced in April that the NVMe FlashCore Module using our 256-megabit part is now supported in its third enterprise storage array family. The Storwize V5000 family targets even greater end customer affordability and expands our reach within this important customer. This further builds upon our existing design wins in the FlashSystem 9100 and the Storwize V7000 storage array families.
Given the affordability focus of the V5000 product line, utilization will likely occur in the very high end of the line, and as a result, we don't expect this particular line to drive significant volume. However, we believe this widening adoption signals the confidence our customer has in its STT-MRAM-based flash storage product. A second important update is on our progress on STT-MRAM enablement with enterprise storage controller suppliers. These engagements are a key element to opening a broader opportunity for our STT-MRAM products in enterprise storage systems by building support for our products into storage controller ASICs upon which these systems are based. We're excited to announce that support for our DDR4-based STT-MRAM is now designed into three enterprise SSD controller ASICs from well-positioned merchant controller companies.
We are working closely to complete MRAM qualification in these platforms with these companies and hope to complete one or more this calendar year. These controllers will help to expand the market for our one gigabit STT-MRAM in integration beyond FPGA-based designs. This is an important enabler of broader penetration of our STT-MRAM into storage systems from leading OEMs in data center applications. Finally, with a further update on our DDR4-based one gigabit STT-MRAM product, I am pleased to announce that we are now designed into two OEM end products, one of which is our first data center application for STT-MRAM outside of storage. Furthermore, we have delivered our first unit shipments to allow end customer qualifications to begin. The manufacturing results from these early lots are encouraging, and our plan for production ramp in the second half of 2019 remains on schedule.
As we look beyond the meaningful near-term opportunities we have with our current STT-MRAM product portfolio, we're also focused longer term on paving a path for larger opportunities within existing applications through reducing the bit cost of this crucial technology. We're actively engaged with the manufacturing equipment suppliers and our manufacturing partners to define the path that will get us to more cost-effective means of producing STT-MRAM memory. Coupled with our efforts on the technology and manufacturing front, we're also analyzing a number of expanded market opportunities that these advances make economically viable. We've been pleased with the engagements with strategic customers in these segments and the potential this holds for driving future growth of STT-MRAM adoption. We remain committed to the development of STT-MRAM discrete memory products as the path to high growth for Everspin.
Turning to our Toggle MRAM products, as we exited Q1, we saw distributor inventory of our products returning to historical levels in terms of weeks of supply. Also significant is that we are seeing growth in demand from North American customers, mainly driven by increases from the data center segment. Additionally, we have 13 new Toggle design wins in Q1 across a broad set of applications, the majority of which started production or are expected to do so by the end of Q2. The breadth of our design pipeline for Toggle MRAM continues to grow, we expect will contribute to revenue growth in the coming quarters.
Following our strategic decision to shift away from manufacturing of sensor products and providing back-end foundry services, we are now fully focused on adding high-value Toggle MRAM business to our healthy revenue base, while continuing to position STT-MRAM as the main growth driver for the company. This focus includes increased customer engagement, reduced manufacturing costs, and other business initiatives that improve the fundamentals of the business going forward and provide the path to profitability. As we stated last call, we believe the customer demand for MRAM in our core markets remains solid, and that the long-term opportunity for this disruptive technology continues to grow. Our Toggle manufacturing expansion through our Silterra partnership remains on track for 2020 production start. A key element of accelerating future Toggle MRAM sales is looking at new opportunities that can benefit from an extension of our current product portfolio.
As we have stated in the past, the markets for this technology are very long-lived, and as customer requirements evolve, it creates new opportunities where next-generation Toggle products can provide unique value proposition in mission-critical memory applications. Working with customers over the past few months, we've identified opportunities in gaming and industrial automation applications that our extended roadmap will address. We're actively engaged with our customers in these segments to finalize our plans and expect to announce availability of new Toggle MRAM products in Q4. We're excited about these accomplishments as demonstration of our MRAM leadership and the progress towards growing this important emerging market through penetration into applications with increasing potential. It's especially significant as we lead this market into the era of gigabit MRAM memory, bringing an even stronger solution to solving the data storage latency problems of data center operators.
In August, Everspin and our partners will participate in MRAM Developer Day and Flash Memory Summit, August fifth through eighth in Santa Clara, where we will present in detail where MRAM is and where we intend to take it. Near term, we still face challenging market conditions, but we believe that these are temporary. We remain focused on our journey to profitability and delivering the long-term disruptive potential of MRAM technology. Now over to Jeff to take you through the details on the numbers.
Thank you, Kevin, and good afternoon, everyone. I'll start by reviewing the first quarter 2019 income statement. Revenue in the quarter was above the high end of guidance at $10 million, compared to $14.9 million in the first quarter of 2018, which included $5.5 million in licensing, royalty, and other revenue. Compared to revenue of $12.3 million in the fourth quarter of 2018. First quarter product sales represented 90% of total revenue, or $9 million, which was down slightly from $9.4 million or 63% of total sales during the same quarter last year, and down 12% from the $10.2 million or 83% of sales in the previous quarter. Licensing, royalties, and other revenue in the first quarter of 2019 contributed approximately $1 million, compared to approximately $5.5 million in the first quarter of 2018, and $2 million in the previous quarter.
The first quarter of 2018 included a fee for the sensor IP license agreement we secured as part of our strategy to transition our sensor portfolio to a licensing model. The sequential decrease was a result of lower fab service revenue, reflecting our initiative to strategically reduce our exposure to less profitable foundry business. MRAM product sales in the first quarter, which includes Toggle and STT-MRAM, were $8.5 million, compared to $8.9 million in the first quarter of 2018, and $9.7 million in the previous quarter. The sequential decline in MRAM product revenue reflects high end-of-the-year distributor inventory levels for Toggle products exiting last year, as well as the program reduction at a large Toggle customer that we discussed during our last call.
As a reminder, the short-term impact to Toggle revenues from this program will have minimal to no impact on our long-term gross profit dollars, while also freeing up Toggle manufacturing capacity to pursue additional higher-value discrete Toggle business. Gross profit for the first quarter of 2019 was $4.8 million, or 47.7% of revenue, compared to $10 million or 67% of revenue in the first quarter of 2018, which again included the benefit from a material one-time licensing agreement. Gross profit was $5.4 million, or 44.2% of revenue in the prior quarter. The 350-basis point sequential increase in gross margin reflects improved manufacturing yields on our Toggle products. Operating expenses for the first quarter 2019 were $9 million, compared to $11.1 million in the first quarter of 2018, and $8.8 million in the previous quarter.
Breaking down our operating spend for the first quarter, research and development expenses were $4 million, compared to $6.5 million in the same quarter a year ago, and $3.9 million last quarter. Research and development was up $66,000 sequentially as a result of increased joint development spending, offset by reductions in other expenses. SG&A expenses were up $63,000 sequentially due to higher accounting and professional service expenses associated with our year-end audit, partially offset by lower sales and marketing spending. Interest expense for the first quarter of 2019 was $211,000, compared to $211,000 in the first quarter of 2018, and $228,000 in the previous quarter. Other income was $127,000 in the first quarter of 2019, compared to $44,000 of income in the first quarter of 2018, and $142,000 of income in the fourth quarter of 2018.
GAAP net loss for the first quarter 2019 was $4.3 million, or $0.25 loss per share based on 17.1 million weighted average shares outstanding. This compared with a GAAP net loss of $1.3 million, or $0.09 loss per share during the same quarter a year ago, and a loss of $3.5 million or $0.20 loss per share in the prior quarter. Now turning to the balance sheet, cash and cash equivalents were $18.5 million at the end of the first quarter, compared to $23.4 million at the end of the fourth quarter 2018. Total assets at the end of the first quarter were $42.2 million, compared to $45 million in the previous quarter. Total liabilities were $20.8 million in the first quarter as compared to $20.1 million in the fourth quarter of 2018.
Stockholders' equity was $21.4 million, compared to $24.9 million in the fourth quarter of 2018. Looking ahead to the second quarter of 2019, we expect revenue to range between $9.6 million and $10 million. The resulting GAAP loss per share will range between $0.27 loss per share and $0.23 loss per share based on an average weighted share count of 17.2 million shares outstanding. With that, we'd now like to open the call to your questions. Operator?
Thank you. Ladies and gentlemen, if you have a question at this time, please press the star then the number one key on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. Again, that's star then one to ask a question. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from Richard Shannon with Craig-Hallum. Your line is now open.
Kevin and Jeff, thanks for taking my questions here. Congratulations on the 1 gig wins here. Maybe that's the first couple of questions for me. Seems like these designs came pretty quickly or faster than maybe would've expected. Maybe if you can give us a sense of the urgency of design wins here, maybe you can get a profile of these customers. I think, Kevin, you mentioned one of the applications was outside of storage. Maybe you can give a sense of what that application is, that'd be appreciated.
Sure. Good to talk to you, Richard, and thanks for the questions. The urgency or at least the speed at which you see these designs happen is really a function of with getting to the point of having our customer qualification samples ready, we're able to reengage with customers who had previously decided to wait on the 1 gig, after we changed the priority regarding the 256 in terms of the primary STT-MRAM vehicle. That really has paved the path to getting some of these customer engagements up and running on a very quick basis. With regard to the nature of the applications, I'm afraid we're under confidentiality, and I really can't provide much more clarity on that.
That's what I figured, but I thought I'd try it anyway. Kevin, did I hear you correctly that your customers are moving to qualify their product with their customers? Could I get a sense of how fast that might occur?
Yeah. I didn't say anything about their end customers. That's their program. This would be allowing our parts to be qualified within our customer's product.
Okay. All right. Let's see here. You also mentioned, announced, or maybe not announced, but you mentioned something about the ASIC controllers are going to now support MRAM. Wondering how fast we can see those guys qualify and then get into end products like SSDs, and when does that lead to revenues? I'm assuming it's sometime mid to later in 2020, but just want to get a sense if that timeframe has improved at all.
Sure. While the timing of these releases isn't really within our control, our understanding is that one or more of these devices are at least planned to be available in late 2019, enabling OEMs to subsequently design products. OEM design cycles vary, but our expectation is that this would make revenue toward the end of 2020 or possibly, well, 2021 is likely where we'd expect the majority of volume from these designs to be enabled.
Okay, fair enough. One last question from me. I will jump out of line. Kevin, in your prepared remarks, you talked about both last quarter and now this quarter about eventual return to growth here. Are you still believing that the second half will show growth over the first half or maybe third quarter over second quarter and toggle, or maybe if you can give a little clarity as to your thought process there?
I think we'd reiterate the previous statement we made, which is that we believe that in the second half of this year, we'll return back to sequential growth.
Okay. I think that's all the questions from me. Thank you very much.
Thank you, Richard.
Thank you. Our next question comes from Kevin Cassidy with Stifel. Your line is now open.
Yes, thanks for taking my question. On your improvement on yields for the Toggle devices, is there more room for improvement? Can we expect gross margins to expand based on better yields going forward?
Yes. I believe that there is continued improvement. We have specific goals for each of the products that we have in the Toggle product portfolio. We're making progress in moving toward those goals, and we've seen good improvement in manufacturing yields. We still have additional upside in terms of yields, and it's a very large focus for us as, obviously, it increases our profitability. There's a lot of focus going on there, but in answer to your question, Yes, we do have additional room, and we are confident that our manufacturing line will continue to improve.
Okay, great. I wonder if you could describe a little more of your pipeline or the funnel of designs that you're working on the STT product, the one gigabit. How many samples do you have out to customers? Some information like that just to know what we can expect in the future.
Yeah. I don't know if a lot of detail on how many customers we've sampled is helpful, but I will say that we've sampled several customers, Kevin, and are engaged with several ecosystem partners as well, beyond the design-ins that we mentioned during the lead-in script here. We've announced two customer design-ins and three ecosystem design-ins at this point, with several customers and ecosystem partners.
Okay. One other question from me is, on the embedded MRAM, can you say any progress that GlobalFoundries has had, or even is there an opportunity to move your technology to other foundries?
We have no indications beyond the public statements regarding GlobalFoundries other than them starting production in 2019. That means that initial royalties would still be possible this year, based upon them shipping products that contain MRAM. Beyond that, we haven't talked publicly about any other royalties from any other foundry to announce.
Okay, thank you.
Thank you, Kevin.
Thank you. Our next question comes from Ari Shusterman with Needham & Company. Your line is now open.
Hey, guys. Thank you for taking my question. I'm asking on behalf of Rajvindra Gill. When it comes to the mix between your STT MRAM and Toggle product for this quarter and for the rest of the year, how should we think about the mix? Thank you.
Ari, we don't give guidance in terms of the mix of those products. As we've talked about, we believe they're both on a growth path. We're expecting them to continue along that path. We don't break that out between Toggle and STT MRAM.
Okay, thank you. One more question. With regards to China tensions, do you see any risks to your business, especially given recent news?
What I'd say is, we have seen the China situation having some impact, especially in the industrial segment overall. There's been a slowdown in China manufacturing, that definitely did, or at least put some pressure on some of our customers. For the moment, that has stabilized for us, we believe that with any improvement in the trade relations between the U.S. and China, that actually that pressure will hopefully return us back to the potential that segment holds for us.
Thank you. I'm not showing any further questions at this time. I would now like to turn the call back over to Kevin Conley for any closing remarks.
Thank you, operator. Before closing out today's call, I'd like to highlight that Everspin will be participating in the upcoming B. Riley FBR Institutional Conference in Beverly Hills on May 22nd, the Cowen TMT Conference in New York on May 29th, and the Stifel Cross Sector Conference in Boston on June 12th. Please contact your sales representatives at the respective firms or the Shelton Group if you would like to schedule a meeting with us. Thank you for your participation on today's call, we look forward to reporting our continued progress next quarter. Operator, you may now disconnect the call.
Ladies and gentlemen, thank you for participating in today's conference. This does conclude today's program, and you may all disconnect. Everyone have a wonderful day.