Good afternoon, welcome to the conference call to discuss Everspin Technologies' first quarter 2023 financial results. At this time, all participants are on 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 3, 2023. 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 expectation of 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 and 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 our quarterly report on Form 10-Q, which will be filed with the SEC on May 4, 2023, and 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 and except as required by law, we undertake no obligation to update any forward-looking statements made on this call to update or alter our forward-looking statements, whether as a result of new information, future events or otherwise.
The financial results discussed today reflect our preliminary estimates, are based on information available as of the date thereof, hereof, and are subject to further review by Everspin and its external auditors. Our actual results may differ materially from these estimates as a result of the completion of our financial closing procedures, financial adjustments and other developments arising between now and the time that our financial results for this period are finalized. Additionally, the company's press release and statements made during this conference call will include discussions of certain measures of financial information in GAAP and non-GAAP terms, including in the company's press release are definitions and reconciliations of GAAP net income to adjusted EBITDA, which provide additional details. A copy of the press release is posted 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, Sanjeev Aggarwal. Sanjeev, please go ahead.
Thank you, operator, and thanks everyone for joining us on the call today. Everspin delivered quarterly revenue of $14.8 million, which is at the high end of guidance and a 3% increase year-over-year. We were GAAP net income positive for the 8th quarter in a row, which continues to be a strong focus for the company. A few highlights for Q1 2023. During Q1, we paid off our line of credit and term loan in full. As of the end of Q1, Everspin is debt-free. Everspin's xSPI family of STT-MRAM products was awarded Best in Show Memory and Storage category at the embedded world Exhibition&Conference in March 2023.
We successfully completed the first silicon for our new xSPI family of STT-MRAM products from 4 megabit to 16 megabit on 28 nanometer CMOS that was taped out in Q4 of 2022. Engineering samples are now available for this family of products. We are starting to see some early design-ins and wins for our xSPI family of STT-MRAM products, densities from 4 megabit to 128 megabit. For our business outlook, product backlog for balance of 2023 and into 2024 as of March 31, 2023 continues to be high although we are seeing low levels of cancellations, pushouts and pull-ins. We continue to alleviate some of our foundry chain, supply chain constraints, which is helping address our unfulfilled total demand. A little bit about our technology.
As mentioned in the last earnings call, Everspin had taped out a new xSPI family of STT-MRAM products on 28nm CMOS with densities from 4 megabit to 16 megabit. We are excited to report that we have verified functionality on first silicon and engineering samples are now available to our customers. As a reminder, in 2022 we had introduced 16 megabit to 128 megabit density xSPI STT-MRAM products on 28nm CMOS node. With these two xSPI family of STT-MRAM products, our customers have access to densities ranging from 4 megabit to 128 megabit. These products will enable our customers to simplify the system architecture and easily replace legacy memory components like SRAM and FRAM.
They are ideal for use in electronic systems such as industrial IoT, network and enterprise infrastructure, process automation and control, aeronautics and avionics, medical and gaming. Everspin continues to get interest from our customers for a high density greater than 256 megabit discrete STT-MRAM part on 2x CMOS node for discrete NOR flash replacement. The first such product is in the design phase and on schedule for production in 2024. When available, this part would be ideal for replacing NOR in FPGA systems to store configuration memory and simultaneously enabling 100x faster over-the-air updates. I will now turn it over to our CFO, Anuj Aggarwal, who will take you through our 1st quarter financials and 2nd quarter 2023 guidance. Anuj?
Thank you, Sanjeev, and good afternoon, everyone. As part of first quarter 2023 financial results, Everspin Technologies is pleased to announce its eighth consecutive quarter of positive net income. We also reached an incredible milestone in paying off our line of credit and term loan in Q1, making Everspin officially debt-free. In addition, we generated positive cash flow from operations of $1.2 million during the quarter. We delivered solid quarterly results at the high end of guidance with revenue of $14.8 million compared to $15.7 million last quarter and $14.3 million in the first quarter of 2022. We also had positive net income of $0.8 million and positive cash flow from operations of $1.2 million for the first quarter of 2023.
MRAM product sales in the first quarter, which includes both Toggle and STT-MRAM revenue, was $13.8 million compared to $14.6 million the prior quarter, an increase from $12.7 million in Q1 2022. Licensing, royalties, patents, and other revenue in the first quarter remained consistent with the prior quarter at $1.1 million, compared to $1.7 million in Q1 2022. Shipments to suppliers for our largest end customer, who we serve with our high-density STT product for data center applications, represented 11% of revenue in the quarter versus 5% of revenue in Q4 and 19% in Q1 2022. Turning to gross margin, GAAP gross margin for the first quarter of 2023 was 56.8% versus 51.4% in the prior quarter and 58% in Q1 2022.
GAAP operating expenses for the first quarter of 2023 were $7.7 million versus $7.5 million in the prior quarter and $6.3 million in the first quarter of 2022. The higher operating expenses in the quarter compared to the Q1 2022 was primarily driven by increased cost to support the xSPI family of STT product that is currently in low volume production. We are pleased to report first quarter 2023 positive net income of $0.8 million or $0.04 per basic share based on 20.5 million basic weighted average shares outstanding.
This compares to a GAAP net income of $0.6 million or $0.03 per basic share in the fourth quarter of 2022, a net income of $1.9 million or $0.10 per basic share in the first quarter of 2022. Basic EPS of $0.04 was better than the midpoint of our guidance range, reflecting our strategic operational discipline and ability to drive profitability in the face of tightening supplies and macroeconomic uncertainties. Adjusted EBITDA continues to remain positive. For Q1 2023, adjusted EBITDA was $2.3 million compared to $2.1 million in the prior quarter and $3.1 million in Q1 2022. Cash and cash equivalents ended the quarter at $24.2 million compared to $26.8 million at the end of the prior quarter and $19.9 million in Q1 2022.
The decrease in cash quarter-over-quarter is a result of Everspin paying off its term loan and line of credit in full during the quarter. Cash flow from operations was a healthy $1.2 million for the current quarter. Turning to our second quarter 2023 guidance, Everspin is cautiously optimistic. Demand for our Toggle products remains strong. Everspin expects total revenue in a range of $14.5 million-$15.5 million. Everspin expects GAAP net income per basic share to be between breakeven and $0.05, primarily influenced by expenses related to the xSPI family of STT product development and price increases from our suppliers. I'll now turn it back over to Sanjeev for some brief additional commentary before we open it up for questions.
Thanks, Anuj. In summary, Everspin reported another quarter, now the 8th in a row of profitability, which is a strong focus for the company. During Q1, we paid off our line of credit and term loan in full, making Everspin debt-free as of Q1 2023. Bolstered by our 1st quarter performance, guidance for the 2nd quarter, and our early views into the rest of the year lead us to believe Everspin is successfully navigating the slowdown in the semiconductor industry. We are pleased that we were able to bring another family of STT-MRAM products to our customers and are excited to see their interest and traction with these products. Thank you for joining us today. Operator, you may now open the line for questions.
Thank you. As a reminder, if you'd like to ask a question, please press star one one on your telephone. I also ask that please wait for your name to be called before you proceed with your question. First question will come from Richard Shannon of Craig-Hallum. Your line is open.
Well, hi, guys. Thanks for taking my questions. Let's see here. Sanjeev, I wanted to follow up on one of your remarks here in your second set of comments about navigating the slowdown in semis. I guess in your earlier comments, you also talked about some pushouts and pull-ins and a little bit of cancellation. I guess I want to get a sense of backlog, whether that's going up or down, where are lead times now, when do you expect them to come in, and what does that ultimately imply about your book-to-bill in the first quarter and what you think it might be in the second?
Hi, Richard. How are you doing?
Doing fine. Thank you.
Yeah. In the first section, I was basically talking about some pushout, some cancellations and pull-ins, and that is basically our spin business returning to what we call a baseline. We typically see a little bit of that going on in every quarter. In terms of what we are seeing or why I'm saying that we are seeing us successfully navigating the slowdown is because we're actually seeing backlog towards the end of 2023 and going into 2024, and it's a pretty healthy backlog and it makes us feel that we can actually do pretty well in the year. We're actually looking to grow quarter-over-quarter and actually do as well as we did last year.
Okay. an interesting statement about growing quarter- to- quarter, I think probably the part of that that I'm more interested in, I think most investors are, is specifically thinking about your product revenues. Would you also declare that product revenues can grow quarter on quarter the rest of the year, including second quarter?
Anuj?
Hi, Richard. This is Anuj. Product revenue is also doing very well, right? We're seeing strong growth in Toggle sales. With our xSPI product family coming into low volume production, we're optimistic based on some of the feedback we've gotten from customers and as we begin to get design wins. We're seeing the ramping of that product as well. Then as you know, the challenges are really around the data center. And so there's still some sluggishness there, but Toggle is going very strong and the xSPI product is ramping nicely.
Okay. Fair enough. Maybe touching on a couple elements in the financial guidance for the quarter. Always try to get a sense of what you're thinking about on both on gross margins and OpEx. Let me touch on gross margins for a second. If I look at the last 5 quarters, you had four of those five near the levels you just reported, and the fourth quarter was a bit below. I think you talked about some mix and yield dynamics in the fourth quarter. Would you call out, kinda last quarter as more of a normal mix and situation or was it more optimized?
I know relative to your long-term guidance of 50%-55% gross margin, a little bit on the high side of that. You've had some good success in the last four out of five last quarters. I wanna get a sense of whether you expect that to maintain here or you see the first quarter as more of an optimistic outcome.
Yeah, yeah. Sure, Richard. Let me try to answer that. You know, we're... We try to be a little bit cautiously optimistic, I guess, when we provide guidance. That's why you see the fourteen and a half to fifteen and a half in terms of revenue, you know, just trying to glide, you know, slightly higher than the Q1 results, right? I think in terms of gross margin, you are seeing a little bit of product mix benefit in Q1 and some other items. You know, we still think that low to mid-fifties, maybe more mid-fifties is realistic. I would, without giving guidance, kind of stick with that story for now.
From an OpEx standpoint, you know, we've shared that we're trying to be frugal but smart in terms of how we're spending money. There has been an uptick in OpEx related to the new xSPI industrial product, and it'll continue to be at that level as we ramp the product.
Okay. fair enough. I'll ask one more question, jump out of line here. Maybe to start the conversation on your new xSPI products, Sanjeev. Sounds like you're getting some early stage success in designs and attention here. Maybe you can give a little bit more color to where you what family of products or excuse me, which density, what applications you're seeing it in early, and then to what degree are we gonna see the benefits coming in this year versus in calendar 2024?
Yeah. I'll probably start with the last question. You know, most of our design wins on ends are gonna be in the industrial space, so I think it's gonna be quite challenging to see any significant revenue in 2023. Best case, you could see some upside in Q4 of this year.
Okay.
In terms of design wins, we're actually seeing it across the range all the way from four megabit to 64 and even 128 megabit. Most of the design wins are actually with our first family that we brought out, the 64 megabit native die. Those are the ones that are actually a major part of the statement that I was making that we're starting to see early design wins. We do expect the design wins to go up with the new product in the second half of this year once the parts are available to our customers.
Okay. perfect. That's great news and glad to see the outlook here going very strongly. I will jump in the line, guys. Thank you very much.
Thank you, Richard.
Thanks, Richard.
Thank you. If you would like to ask a question, please press star one one. One moment while we wait for the Q&A pod. We have another question coming. One moment, please. This will be a follow-up from Richard Shannon of Craig-Hallum. Go ahead, please.
Okay. Well, I'll jump back in then. Let's see here. A couple other questions. Sanjeeev, maybe to follow up on one of your prepared comments. You talked about this in the last few calls about this more leading-edge, higher density, STT that's gonna be NOR flash replacement. Sounds like you're seeing some continued progress here. If you were to think about a timeframe by which you'd start to see some benefit from that, when would that be? Are these gonna be difficult, you know, architectural kind of decisions for customers to make, or is this more drop-in replacement, and do you think it'd be a fairly short sales cycle?
Yeah. So the high density part that we're talking about, as far as revenue is concerned, I think you would start seeing some revenue in 2025, with it going into production sometime in, you know, second half of 2024. As far as the architecture for this part, it's gonna be a drop-in part, so it'll be a direct replacement for standalone NOR. With the, you know, the products are still gonna be industrial, so I think the qual cycle is still gonna be 12-18 months. In that sense, it's still gonna be a long cycle, but at least it's gonna be a drop-in, making it easier for our customers to put them in their systems.
Okay. Perfect. That's helpful. My last question, I'll jump out of line again, is, kinda highlighting your comments a few times, your prepared remarks about having paid off your debt, being debt-free for the first time in your public existence, which is fantastic to see. You've been profitable eight quarters in a row with a good cash balance and, you know, very good management of your cost structure here. What does this help you do in terms of being a little bit more aggressive on the growth side and investment or even something that might be inorganic in nature? Should we expect to see R&D start to tick up as you find other product areas, or can this just go into?
How should we think about eventually, what looks like to be a nicely growing cash balance?
Yeah, Richard Shannon, this is Anuj Aggarwal. Great question. You know, we're continuing to evaluate the product roadmap and looking at where the opportunities are. Obviously, there's a lot of focus on the xSPI family in the near term and, you know, the other product that you mentioned in the more longer term. Based on what we're seeing from a cash flow from operations standpoint and our current cash position, we feel we can support that ramp and really support the products at this time without borrowing money. It makes sense right now to pay off the debt, right? If there's other opportunities that come up where we feel like, you know, we might have to borrow additional funds, you know, we'll look into that.
I think right now what we're trying to demonstrate is that, you know, this is a viable business. We can be profitable. We can generate cash. There's a good amount of cash balance on the balance sheet. The balance sheet's healthy, and so we can support future opportunities and growth from that.
Okay. Fair enough. That makes sense. I think that's all from me, guys. Thanks a lot, and congratulations again on a nice start to the year.
Thank you.
Thanks again, Richard.
Thank you. If you would like to ask a question, please press star one one on your telephone. The next question is coming up. One moment, please. Our next question will be coming from Orin Hirschman of AIGH. Please go ahead.
Hi. Can I also give congratulations in a very tough environment that, you know, thank God you're showing real progress.
Thanks, Orin.
Thanks, Orin.
I wanna just go back to one of the questions that was asked. You know, you have a great analyst asking great questions, so you didn't leave a lot for anybody else. Just in terms of the actual. You mentioned the design cycle. When is the actual sampling you're hoping for on some of the placement products versus when you actually hope to begin volume production and seeing real revenues? Can you just review that one again?
Yeah, sure. Remember the part that we taped out in 2022, that was a.
Yeah.
64 megabit die, and we were sampling between 8 megabit and 128 megabit. The new one that we got out is actually from 4 megabit to 16 megabit. There's an overlap between 8 megabit and 16 megabit going all the way up to 128. People that were able to use that original die to actually integrate into their systems and start a qual procedure, I think they will benefit from the first die that we taped out, and we will see the benefit for the 8 meg and the 16 meg going into production.
It'll actually cut down some of the qual cycle. In that case, let's assume, you know, if it's a 12-month cycle or a 15-month cycle, it probably come down to 9 months based on these samples being available 6 months before this other part that we just brought out. Did I answer your question, Oren?
Yeah. In terms of, you know, design and tests going on already...
Yes, that is correct. Except for the 4 megabit part, which is new now. Yeah.
In terms of the customer feedback, what's the customer feedback like? How does what have you seen in terms of the niches where you're getting the traction early on?
Yeah. In terms of customer feedback, there is some very early feedback. It's not very detailed. The part seems to perform to the spec that we have published, so that's always good, and that feedback is always appreciated. I'm sorry, I forgot the second part of the question, Oren.
It's okay.
customers in the.
Yeah. Which verticals are you seeing?
Yes. The markets that are seeing traction right now or the early traction is in the aerospace and defense industry, and then also in some of the industrial space.
Okay. Okay. Just going back to some of the work that you've been doing on your IP, that huge open project, MS project, what can you tell us in terms of timing when come something up to you know, A, on a licensing side and B, on a revenue product related side, royalty side? I realize that might be very far out.
Sorry, just to confirm, you were breaking up over there. Are you referring to the QuickLogic FPGA project?
Yes.
Yeah. That project is progressing on schedule, and I think, the tape-out for that design is expected in the second half of this year. We will start seeing some early data on the silicon, which would be a 90-nanometer silicon from SkyWater, on which we do the design. We'll start seeing some data in 2024, let's say Q2 or Q3 of 2024. I think the product revenue or the foundry revenue and royalty revenue associated with those products are at least two years out from there, Oren.
Okay. You said both product royalties and also licensing or licensing happens or has happened already, or licensing happens gradually when you hit certain milestones?
The licensing happens gradually over 2023 and 2024. The foundry revenue and the royalty revenue starts when we go into production, which is probably 2025 timeframe.
Okay, great. One quick question on, data center. You know, any signs of life or bottoming or how would you term the overall picture there?
That's the data center I think.
Oren, are you asking about the data center products?
Yeah, just in terms of the overall, you know, what's going on there right now. Do you think that they're stabilized, still declining, coming back?
Yeah. It's, I mean, we definitely, like, Anuj Aggarwal reported, we did better in Q1 compared to Q4. Still, we were not as good as we were at the peak at about, you know, I think the numbers that Anuj Aggarwal put out was 19% versus 5% in Q4 and then 11% in Q1. We have recovered some, from Q4 to Q1. We are not seeing indications that we're gonna get up to that, other up to the 19% levels, that we had earlier.
My follow-up on that question is, just in terms of your guidance for the year, you know, hoping to see some progress quarter to quarter on the product side, does that take a conservative enough stance, do you know, you know, considering what happened on the data center side? Meaning that's not assuming any upside of any sorts in data center, rather just stable, and do you think stable is a fair assumption even at this point, or that assumes data center coming down and other products are making up the gaps?
Yeah. Yeah. Oren, this is Anuj. I think, you know, as you'll see, our concentration with this largest customer has decreased like Sanjeev was mentioning. But on the flip side, you know, we continue to have strong design wins in Toggle, and then that is ramping nicely. The revenue continues to be strong quarter-over-quarter. In addition to that, we've got the RadHard deals that have increased, other things that are happening. Just naturally now, the concentration is smoothing out. As the xSPI product gets more design wins and things happen, that will help as well. But we're fairly conservative on the data center piece, but everything on the other side is looking good. Industrial is looking good.
My last question just is on the companionship for the FPGA companionship you demoed. Where is that up to? What's the thoughts on commercialization of it? I'll end on that.
You know, we have been in communication with the FPGA companies, to actually integrate our xSPI family product with their FPGA. I think it's in early stages, and we cannot really comment on that too much, but it is an ongoing process right now.
Okay. Saying are they interested enough that there is some commitment on their part to do designs with?
I think it's too early for commitment, but there is enough interest that we are actually continuing to engage and with more than one company to basically end up with a design win with a customer in the FPGA market.
Okay.
With an end customer, I guess. I shouldn't say FPGA market. With an end customer.
That's through them or that's through you directly?
It would be through the FPGA vendor.
Okay, good. Okay. Congratulations again on the progress.
Okay. Thank you.
Thank you.
Thank you. As a reminder, if you would like to ask a question, please press star one one on your telephone. One moment, please. At this time, there are no more questions in the queue. I would like to turn the call back over to management for closing remarks.
Okay. With that said, we conclude today's call. Thank you all for joining us, and we look forward to reporting our progress and results in the next quarter's call. Operator, you may now disconnect the call.
Thank you everyone for joining. The call is disconnected. Have a great day.