Everspin Technologies, Inc. (NASDAQ:MRAM) Q4 2023 Earnings Call Transcript February 28, 2024
Everspin Technologies, Inc. isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon, and welcome to the conference call to discuss Everspin Technologies Fourth Quarter and Full Year 2023 Financial Results. 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, February 28, 2024. I would now like to turn the conference over to Cassidy Fuller [ph], Investor Relations for Everspin.
Unidentified Company Representative: Thank you operator, and good afternoon everyone. Everspin released results for the fourth quarter and full year 2023 ended December 31, 2023 this afternoon after the market closed. I'm Cassidy Fuller, Investor Relations for Everspin. And with me on today's call are Sanjeev Aggarwal President and Chief Executive Officer; and Anuj Aggarwal, 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 the company's expectations for Everspin's future business, financial performance and goals, customer and industry adoption of MRAM technology, successful bringing to the market and manufacturing products in Everspin's design pipeline and 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 the company's SEC filings including the annual report on Form 10-K and other SEC filings made from time to time, in which the company 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, the company undertakes no obligation to update or alter any forward-looking statements made on this call, whether as a result of new information, future events or otherwise.
The financial results discussed today reflect the company's preliminary estimates and are based on the information available as of the date hereof and are subject to further review by Everspin and its external auditors. The company's actual results may differ materially from these estimates as a result of the completion of financial closing procedures, final adjustments and other developments arising between now and the time that the 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 and financial information in GAAP and non-GAAP terms. Included 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 on the Investor Relations section of Everspin's website at www.everspin.com. And now I'd like to turn the call over to Everspin's President and CEO, Sanjeev Aggarwal. Sanjeev please go ahead.
Sanjeev Aggarwal: Thank you, Cassidy, and thanks everyone for joining us on the call today. We are pleased to report record annual revenue and profitability for 2023 with a strong gross margin, a solid balance sheet with no debt and the highest cash balance in our company's history. During the fourth quarter, we delivered revenue of $16.7 million above the high end of our guidance range of $15.4 million to $16.4 million. This led to a record full year revenue of $63.8 million, which was up 6% year-over-year. We delivered gross margin of 58.1% in the fourth quarter, up from 51.4% in Q4 2022. We recorded our 11th quarter in a row of GAAP profitability, a strong focus for the company. And we ended the year with a cash balance of $36.9 million.
On the product side, we had a total of 217 design wins in 2023, up 3% year-over-year. Our pipeline of new design wins for our MRAM products remain strong and exceeded our internal expectations. We expect our existing Toggle MRAM product customers will qualify our new industrial STT-MRAM products this year, while our newer MRAM customers will qualify later in 2025. Additionally, our new industrial STT-MRAM product line has continued to gain momentum in terms of design wins, showcasing the importance of ramping technology from the last few quarters. Looking ahead, we expect to begin translating these design wins into revenue in the second half of 2024. We remain committed to preserving Everspin's position as a leader in MRAM technology and this is reflected in our extensive intellectual property portfolio and the successful licensing of our technologies.
As we discussed on our last earnings call, we entered into two new radiation hard program agreements, the first related to Toggle MRAM to develop reliability models for strategic radiation-hard Toggle MRAM applications. The second agreement was to license our STT-MRAM technology to build a strategic radiation hardened FPGA. This second project remains ongoing into the first quarter of this year. As the project progresses, we anticipate additional government funding to help support the build of this FPGA device. We anticipate this project to continue progressing this year. We also want to provide an update on our existing adhoc 64-megabit STT-MRAM project that we started in early 2022. We expect to receive additional silicon from our supplier, which we will use to create a demonstration of working silicon.
A technician inside a production line operating sophisticated machinery and components produced by the company.
This will be a higher-margin, lower-volume product and we expect to recognize revenue from this project throughout 2024. As we mentioned on our previous call, a new key focus for us is distributed MRAM or DMRAM. As discussed, we believe our DMRAM approach is revolutionary and will give us an edge on energy efficiency and scaling, as we deploy the solution in FPGAs and AI inference engines. We look forward to updating you on our progress here over the coming quarters. Turning to our outlook for 2024. We continue to have good visibility and a strong pipeline driven by solid product backlog. We expect the first half of the year to be more muted given economic weakness in China and softness in industrial and automotive sectors in part due to inventory digestion and rebalance.
However, we expect a ramp in the second half of 2024 as we begin to recognize revenue from our design wins for our STT-MRAM products that we have discussed over the past two years. Moreover we expect to see continued growth in our Toggle MRAM products, as well as additional design wins. I will now turn it over to our CFO, Anuj Aggarwal, who will take you through our fourth quarter financials and first quarter 2024 guidance. Anuj?
Anuj Aggarwal: Thank you, Sanjeev, and good afternoon everyone. As part of our fourth quarter and full year 2023 financial results, we are pleased to announce that we have achieved record annual revenue of $63.8 million and record profitability with net income of $9.1 million in 2023. Q4 2023 also marks our 11th consecutive quarter of positive net income. In addition, we generated positive cash flow from operations resulting in the highest cash balance of our company's history of $36.9 million. We delivered strong quarterly results above the high end of our guidance range of $15.4 million to $16.4 million, with revenue of $16.7 million and diluted earnings per share of $0.09. We also recorded positive cash flow from operations of $2 million.
Our revenue outperformance was preliminarily driven by the success we have seen in our RAD-Hard deals, which have continued to progress well from a technology standpoint. MRAM product sales in the fourth quarter, which includes both Toggle and STT-MRAM revenue were $12.4 million compared to $14.6 million in Q4 2022. Licensing royalties patents and other revenue in the fourth quarter increased to $4.3 million compared to $1.1 million in Q4 2022. Shipments to suppliers for our high-density STT product for data center applications represented 17.1% of revenue in the fourth quarter versus 4.7% of revenue in Q4 2022. Turning to gross margin. Our GAAP gross margin for the fourth quarter of 2023 was 58.1%, up from 51.4% in Q4 2022. GAAP gross margin for 2023 was 58.4%, an increase from 56.6% in 2022.
The year-over-year increase in gross margin is a result of being able to offset increased pricing from suppliers with increased yields on our Toggle products and increased licensing revenue to offset the decrease in product sales. GAAP operating expenses for the fourth quarter of 2023 were $8.1 million compared to $7.5 million in the fourth quarter of 2022. The increase in operating expenses in the quarter compared to Q4 2022 was primarily driven by the development and enhancement of our new X5 family of STT-MRAM products and increased professional service costs. Fourth quarter 2023 net income was $2 million or $0.09 per diluted share based on 21.7 million weighted average fully diluted shares outstanding. This compares to net income of $0.6 million or $0.03 per diluted share in the fourth quarter of 2022.
Fully diluted EPS of $0.09 was above the high end of our guidance range reflecting our strategic operational discipline and ability to drive profitability in the face of macroeconomic uncertainties. Fully diluted EPS for 2023 was $0.42 compared to $0.29 in 2022. For Q4 2023 adjusted EBITDA was $3.6 million compared to $2.1 million in Q4 2022. Adjusted EBITDA for 2023 was $15.3 million, which includes the employee retention credit of $2 million compared to $11.8 million in 2022. We ended the quarter with cash and cash equivalents of $36.9 million, up from $34.9 million at the end of the prior quarter. The increase in cash quarter-over-quarter is a result of Everspin's continued focus on strong cash management while growing cash flow from operations as the company continues to operate debt-free.
Cash flow from operations was healthy at $2 million for the fourth quarter. For the full year cash flow from operations was $13.1 million, up from $9.5 million in 2022. Turning to guidance. We anticipate revenue to ramp as we move through the year with the first half a bit lower than our traditional seasonality given ongoing economic weakness in China and softness in the industrial and automotive sectors. We expect growth to accelerate in the second half of 2024 as we begin to recognize revenue from design wins of our STT and Toggle MRAM products. Taking these factors into consideration we expect Q1 total revenue in the range of $13.5 million to $14.5 million and GAAP net income per diluted share to be between breakeven and $0.05. In summary, we are pleased to report another solid year of growth with record annual revenue, profitability and earnings per share.
Our financial position remains strong boasting a debt-free balance sheet and the highest cash balance in company's history. While we expect to experience a slower start to the year, we expect a solid second half of 2024. We also expect to see additional growth in our Toggle MRAM and DRAM products and we expect to begin recognizing revenue for our STT MRAM products. Thank you for joining us today. Operator, you may now open the line for questions.
