Good afternoon, and welcome to the conference call to discuss Everspin Technologies' first quarter 2021 financial results. As a reminder, this conference call is being recorded today, Thursday, May 6, 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. 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 annual reports on Form 10-K filed with the SEC on March 4, 2021, 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 disclaim any obligations to update or alter these forward-looking statements in the future.

Thank you, operator, and thanks to everyone for joining us on the call today. Q1 results came in just below the midpoint of our guidance as we ended up recognizing no royalty revenue from our RAD-Hard licensing deal. We do expect to recognize the majority of the RAD-Hard licensing revenue over time. Even with that, our Q1 '21 revenue was up over 3% over Q4 2020 and in line with our goal of double-digit growth for the year. More importantly, we increased our gross margin significantly, lowered our costs, and generated positive cash flow for the third quarter in a row while keeping our current distributor inventory in a healthy range of 8 to 10 weeks. For Q1 2021, Toggle revenue was up approximately 10% and continues to gain traction as the market recovers. As mentioned in our last earnings call, we expected Toggle to continue to recover beyond the lows we saw in Q3 2020, and they seem to be doing just that. In fact, our current backlog suggests Toggle revenue is growing faster than we expected, a testament to what we believe is a solid economic recovery in the industrial and factory automation areas, along with shipping to the new design wins we've been discussing for the past couple of years. We did see a strong start in Q2 backlog over Q1 for our industrial customers, and we're encouraged by the signs of all four regions coming back to growth. STT revenue was a little off-plan, as we did see some small inventory adjustments, but we expect to get back on track Q2 through Q4. Design wins continue to grow in Q1 2021 as they did in the overall year 2020, and we are back on track to match or slightly exceed the design win total for all of last year. We have refocused our efforts on turning those opportunities into real revenue and even changed our compensation of our sales force to be more focused in that area. As mentioned last quarter, Everspin is providing production volume shipments to more end customers than ever before, which we believe reflects a strong future demand pipeline and growing adoption of MRAM in the marketplace.

Thank you, Darin, and good afternoon, everyone. Today, I'll focus my discussion on GAAP financial results and highlight some key metrics. Highlights include cash flow from operations was positive for the third consecutive quarter. We also generated cash in the quarter, and gross margin was higher. Revenue for the first quarter of 2021 was $10.3 million compared to $10 million last quarter and $10.1 million in the first quarter of 2020. MRAM product sales in the first quarter, which include both Toggle and STT-MRAM revenue, was $9.1 million, lower than the prior quarter and first quarter of 2020. Licensing, royalties and other revenue in the quarter contributed $1.2 million compared to $0.3 million in the previous quarter and $0.5 million in the prior year period. The increase in revenue is due to the yearly true-up in royalty from a customer generally using our IP, which we have previously licensed to them. The RAD-Hard licensing deal is not included in the first quarter results. Turning to gross margin. GAAP gross margin for the first quarter of 2021 was 58.2% versus 52.3% in the prior quarter. The higher gross margin is driven by royalty revenue. GAAP operating expenses for the first quarter of 2021 were $6.3 million, slightly lower than last quarter's $6.4 million but down from $6.9 million in the first quarter of 2020. GAAP operating expenses in the first quarter of 2021 included $0.7 million of stock-based compensation compared to $1.3 million last quarter and $0.8 million a year ago.

Thanks, Anuj. In summary, we continue to build towards the future of profitable growth. We believe the Toggle demand will continue to gain traction as the market recovers. We anticipate increasing our market penetration of our high-density STT-MRAM products for the data center, both at our top customer as well as other customers as we move through the next few 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 being a big step, with still more to come. Operator, you may now open up the lines for questions.

Your first question comes from the line of Sam Peterman of Craig-Hallum Capital.

Sam on for Richard here. I guess first, just kind of a lot of moving parts in the numbers for first quarter and just thinking about going forward, obviously, a lot of this strength in this quarter was Toggle growing and some licensing revenue being recognized, too, that sounds like that's maybe a one-time bigger impact.

Yes. So let me start. There was probably more than one question on there, but I'll start with a couple of comments. So we did see some royalty uptick that's a true-up from one of our customers that we do a run rate. We don't have a lot of visibility, but obviously, they did much better in the markets that they serve on the royalty rates than we normally would get. And we would project that to be slightly higher than what we were anticipating over time. On the specific STT deal, it was down slightly. I think at the end of last year, they believed they would do better than they were in the end market, and we were looking at some of the data. I think their business was soft. However, this quarter, going from Q1 to Q2, we expect some recovery. By Q3 and Q4, we expect that to be back to normal. So you're going to see a little bit of a ramp-up from that. So nothing catastrophic in any way, but I think it's just the normal leveling of their inventory versus their end demand. So wasn't very concerned about that. It was a negative if you look at it from Q4 to Q1 in terms of those numbers. But the nice news is Toggle grew very well, which we were - again, we believed it would continue to grow. We believed that the new design wins that we've been focused on for the last two years would come to fruition, and that happened. And we're really excited about the fact that Toggle for Q2 is already ahead of where we were in Q1, and we're feeling really comfortable about the backlog. And now it's changed the game where before, we were focused on, can we get enough demand? Now it's like, can you get enough supply? And I'm sure you hear that from everybody.

Yes, yes, hearing that quite a bit. That's really helpful color, though. And I guess on that last point on supply, I know you said in the last call, you'd been able to mitigate margin impacts from supply constraints pretty well. Have you been able to continue to do that? Is there a point where you could think we could see either margin pressure from supply constraints going forward or like you just said, a point at which demand is going to outstrip supply in your Toggle products?

I am showing no further questions at this time. I would now like to turn the conference back to Mr. Anuj Aggarwal. You may proceed.

Okay. So with that, we conclude today's call. Thank you all for joining, and we look forward to reporting our progress and results on the next quarter's call. Operator, you may now disconnect the call.

Thank you.

Thank you.

Thank you. This concludes today's conference call. Thank you for your participation, and have a wonderful day. You may now disconnect.