Good day, and thank you for standing by. Welcome to the conference call to discuss Everspin Technologies' first quarter 2024 financial results. As a reminder, this conference is being recorded. I would now like to turn the conference over to Cassidy Fuller, Investor Relations of Everspin. Please begin.

Thank you, operator, and good afternoon, everyone. Everspin released results for the first quarter 2024 ended March 31, 2024, this afternoon after the market close. 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 would like 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, 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 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. 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.

Thank you, Cassidy, and thanks, everyone, for joining us on the call today. During the first quarter, we delivered revenue of $14.4 million, at the high end of our guidance range of $13.5 million to $14.5 million. We delivered gross margin of 56.5% in the first quarter compared to 56.8% in Q1 2023. We ended the year with a cash balance of $34.8 million. We are pleased by the progress we have made over the past few years with our Toggle MRAM solution, and as we continue to ramp up our lower-density products, we will have increased visibility for our STT-MRAM solutions. Looking ahead, we expect to see flattish product revenue in the second quarter compared to Q1 due to continued weakness in Asia Pacific and in industrial, consumer and auto end markets. However, we expect a ramp in our Toggle and STT-MRAM design wins in the second half of 2024. Our PERSYST industrial STT-MRAM product line has demonstrated consistent strength as it has continued to gain momentum in terms of design wins. We continue to expect to begin translating these design wins into revenue starting in the second half of 2024. Turning now to our radiation hard programs that we outlined last quarter. As we noted on our previous calls, we are engaged in two radiation-hard programs using our STT-MRAM technology: the first related to an ad hoc 64-megabit STT-MRAM project and the second aimed at building a strategic radiation-hardened FPGA. We expect to continue recognizing revenue from the 64-megabit STT-MRAM project over the coming quarters. We successfully executed the deliverables for the strategic radiation-hardened FPGA project in Q1. We expect this project to continue in 2024 with additional funding from the sponsors in the coming months and quarters. During the quarter, we also signed an extension of a Toggle MRAM reliability project for radiation-hard applications that we originally executed in the third quarter of 2023. As you may have seen, we recently announced that IBM selected our PERSYST 1-gigabit STT-MRAM solution for use in their new FlashCore module, the FCM4. This DDR4-like high-performance persistent memory ensures critical data integrity even during power loss. This reinforces deployment of STT-MRAM in data center storage applications. Lastly, we recently submitted our application for the CHIPS and Science Act. While we do not know the exact timing for a decision, we remain optimistic that we will receive funding, which we plan to use for additional 200-millimeter Toggle and STT-MRAM capacity and improved capabilities. There are other grant opportunities that we are pursuing and hope to be able to share additional details as we move through the year. Turning to our outlook for 2024. As we mentioned last quarter, we expect the year to be weighted more heavily towards the second half as we continue to experience a slower start to the year. This slower start can be attributed to continued economic weakness in Asia Pacific as well as higher interest rates, which have driven customers to focus on lean inventory practices, along with shifting project schedules for some government contracts. Despite these near-term challenges, we expect to bring in recognizing revenue from our new STT-MRAM design wins, a stabilization in customer and distributed inventories, and a gradual improvement in the Asia Pacific region. Moreover, we are encouraged by our recent traction. We attended Embedded World in Nuremberg a few weeks ago where we introduced the PERSYST brand and had a full schedule of meetings with existing and potential distributors and customers. We came away from the show with significantly more leads than at last year's event. I will now turn it over to our CFO, Anuj Aggarwal, who will take you through our first quarter financials and second quarter 2024 guidance. Anuj?

Thank you, Sanjeev, and good afternoon, everyone. We delivered solid quarterly results near the high end of our guidance range of $13.5 million to $14.5 million with revenue of $14.4 million compared to $14.8 million in the first quarter of 2023. MRAM product sales in the first quarter, which includes both Toggle and STT-MRAM revenue was $10.9 million compared to $13.8 million in Q1 2023. Licensing, royalty, patent and other revenue in the first quarter increased to $3.6 million compared to $1.1 million in Q1 2023. Shipments to suppliers for our high-density STT product for data center applications represented 20% of revenue in the first quarter versus 11% of revenue in Q1 2023. Turning to gross margin. Our GAAP gross margin was relatively flat to Q1 2023 at 56.5%. GAAP operating expenses for the first quarter of 2024 were $8.8 million compared to $7.7 million in the first quarter of 2023. This drove our first quarter results to a small loss of $0.2 million or a loss of $0.01 per diluted share based on 21.3 million weighted average fully diluted shares outstanding. This compares to net income of $0.8 million or $0.04 per diluted share in the first quarter of 2023. Adjusted EBITDA was $1.9 million compared to $2.3 million in Q1 2023. Our balance sheet remains strong and debt-free. We ended the quarter with cash and cash equivalents of $34.8 million, down from $36.9 million at the end of the prior quarter. The decrease in cash quarter-over-quarter is attributed to investments in equipment for new products and operating facilities to ensure readiness for the anticipated second half ramp. Cash flow used in operations was $1.3 million for the first quarter. Turning to guidance. We mentioned on our last quarter's call that we anticipate revenue for the first half of 2024 to be lower than our typical seasonality. This has proven true for our first quarter, and we expect our second quarter to be down from the first quarter, reflecting flattish Toggle revenue and lower RAD-Hard revenue that Sanjeev mentioned in his remarks. Taking these factors into consideration, we expect Q2 total revenue in the range of $10 million to $11 million and GAAP net loss per diluted share to be between negative $0.14 and negative $0.09. We are optimistic for the second half of 2024 as we begin to recognize revenue from our design wins for our STT-MRAM products. In summary, we remain confident in our ability to scale the business and convert design wins to revenue. We have already observed increased traction with our design wins and are seeing particular strength from industrial and aerospace end markets.

Our first question will come from Quinn Bolton with Needham.

Nick Doyle on for Quinn. A couple of housekeeping ones first. For the first quarter, product revenue was down as expected. But did the high-density STT, did that increase quarter-over-quarter?

Nick, this is Anuj. Great question. So from a product perspective, yes, we did see some softness in Toggle as we've had some challenges with industrial. But from an STT data center perspective, that product has been pretty healthy. So it was up in Q4, and it was pretty healthy in Q1 as well.

Great. And then for OpEx, I mean, what drove the sharp increase this quarter? And do you expect to maintain this higher level? I don't remember if that's related to NREs and not having them this quarter. Just how are you thinking about OpEx?

Yes, sure. So from an OpEx standpoint, there's a couple of things. We had some higher professional services, some stock-based compensation and depreciation. I think without giving guidance, looking forward, we expect OpEx to be relatively flat to down. So the team's working on reducing spending and making sure we can have that decline.

Okay. And then for the 2Q guide, I mean, the guide missed our estimate by about $3 million. Can you just speak to what drove the miss? I mean reading through the lines, it just seems like Toggle is just a little bit worse so that products are expected to decline next quarter. And you mentioned RAD-Hard's going down before it goes up. So in that same vein, margin should probably decline as licensing goes down as well? Just any more color on the guide?

Yes. No, I think you're hitting it as well. I think from a Q2 guidance perspective, if I take a step back, from a product revenue perspective, we expect things to be relatively flat. So as you mentioned, Toggle is flat to slightly down. STT data center, that's going pretty healthy, and we expect it to be relatively flat. But then from a RAD-Hard perspective, as you might recall from some of the previous calls, we've been able to close and complete out several RAD-Hard projects. And we're currently in the works on a couple of additional new RAD-Hard projects. So the guide you're seeing today doesn't include any RAD-Hard revenue since we haven't signed anything yet. And so really, the decline there is you're seeing the RAD-Hard not being incorporated into Q2.

Okay. For my last question, can you share what gives you confidence about the ramp in the second half? Perhaps you could provide a percentage or an absolute dollar range for how much of the growth in the latter half is attributed to the RAD-Hard projects.

Yes. So I want to be careful because we don't necessarily give guidance for the full year. But I will say we're seeing the same macroeconomic challenges everyone else is, so talking about things before, the working capital, we continue to see there's some pressure there from distributors as they're reducing inventory. From a Japan, China perspective, the yen versus dollar impact and seeing that products are a little bit more costly, right, because the yen has depreciated. And then we're seeing ordering kind of going back to the lead times. So from a macro perspective, I think that's still true. I think what I would say as we deep dive into our business, there's a couple of things that give us some confidence in the second half. So if we look at the STT data center, for example, the bookings that we see so far in 2024 look to exceed 2023. And our new STT low-density product, that's also ramping and we're continuing to see design wins. In addition to that, from a licensing perspective, there are several projects that are being worked. They haven't been signed yet, but there's multiple things in the hopper. So we expect to sign a few of those in the second half of the year. So that's what gives us confidence as we look to the full year.

Our next question comes from the line of Richard Shannon from Craig-Hallum Capital.

Maybe a follow-up on the topic here of RAD-Hard. It seems like a particular project here seems to be the reason for the sequential decline here as your products seem to be kind of mostly flat sequentially. Is there like a pause in the project here? Is there a question as to whether it will continue? Because I think your partners talked about a program, assuming all the options are picked up to something that lasts on the order of 4 years, and we've got at least 2 years left to go. So I just want to get some sense of the visibility in that project and whether this is just a lull between the kind of sub programs within the bigger picture?

Thanks for the question, Richard. Yes, you're correct. We anticipate that the strategic radiation-hardened FPGA project we are collaborating on with our partner will be renewed in the coming months or quarter. The delay is due to a holdup from the U.S. government funding agency, which has affected their schedule. As previously mentioned, we met all our deliverables in Q1, so we are optimistic about resuming the project in Q2 once the funding is secured. Additionally, I want to highlight that we discussed a new Toggle MRAM reliability project that we signed in Q2, but we don't have all the details yet, so it hasn't been factored into our Q2 guidance.

Well, I guess I'll follow up on that last part of your comments, Sanjeev, sounds very interesting. How do we think about this in the scale of the other Toggle reliability project? And what's the source there? Is it another U.S. or other government agency? Or what's the source of that one?

So that's essentially a follow-up from the same agency we worked with in 2023. They had some additional questions regarding the reliability models we provided. We are currently gathering more data to update them on that. In terms of scale, it won't be as large as it was in 2023, but we don't have the financial figures available to share yet.

Okay. Fair enough. Let me hit a couple of financial questions for those. Let's see. Let's hit on product gross margins here after some pretty good numbers last year. Last 2 quarters have been fairly significant amount lower, I think, in the high 40s percent range here. Last quarter, you talked about it being something related to yield. I'm wondering if that's still continuing. Is there any visibility in getting that back up to prior levels? And then also, is there any dynamic of mix here, particularly as there seems to be a little bit of shift between Toggle and STT in your mix during the last few quarters?

Yes, Richard, great question. Yes, from a gross margin perspective, the gross margin, again, without giving guidance, has been within our internal model. So we continue to hold with the low to mid-50s as where we believe gross margin is. If you look at Q1 versus guidance, which I think you're kind of alluding to, the Q1 gross margin was pretty healthy. We did have about $3.3 million in RAD-Hard revenue that we saw in Q1. And so that's normally higher margins, somewhere between 70% to 90% gross margin. In Q2, like we mentioned, there's no RAD-Hard revenue that's being incorporated into the guide, so really, the range there is based on purely product margin. But from a product margin perspective, the team has done a great job operationally looking at cost reduction projects, being operationally efficient. So we've been able to see a healthy gross margin last couple of quarters.

Okay. I have a follow-up on product gross margins. Should we consider the levels we've seen over the past few quarters, particularly in the mid-50s range over the last three years, to be unusually high or an aspiration? How does this tie in with our product ramp-up for STT, particularly with both the high-density version and the upcoming low-density one in the second half? Can we still aim for that margin level, or do you foresee it being more challenging?

I think what we've seen in the past, Richard, is probably a little bit on the high end. There's been, I think, some great efficiencies as the teams looked at improving yields and bringing performance up from an operational standpoint. So I think there's some steady state that you'll see there. It's not like you can get yields to 100%, right? So there's going to be some steady state where that kind of tapers off. There is a little bit of flex in terms of the mix. And so as we look at that, there are some challenges there. But if you look at the new low-density STT product, we're expecting margins to improve from that product. Right now, it's just been introduced. And so we're working through the margin challenges there as you ramp a new product and get it up to speed and get yields to the levels you need to get them to. But you should see improvement in the gross margin from that product.

Richard, the aspiration is in the mid-50s, right?

Yes.

Our aspiration is still to be the mid-50s.

Okay. So that's the number you've talked about in terms of your total gross margins, not product gross margins, correct?

That's correct.

That's right.

Okay. Fair enough. Then maybe 1 or 2 others here. I think you said in your press release here something about a foundry agreement here, and I'm not sure if I caught anything in your prepared remarks around that. Can you elaborate what that is?

Yes. So as you know, we've actually been a foundry for several radiation hard programs and also in the past to an embedded program as well over the last 15 years or so. So we are actively acting as a foundry. So this is a new customer that we are bringing online. So right now, we are in the process of setting up their wafers in our fab, and we hope to go into low volume production sometime in the second half of this year, more likely Q4 of this year. And the whole idea here, Richard, is that it's going to improve our fab utilization and then lower our fixed costs by distributing them over more products.

Okay. Can you elaborate on the product here? Is this a custom product in any way? Any sense of application? And how big can this customer be relative to your other big customers or your company in total scale?

Hopefully, we can talk about this more at the next earnings call, Richard, but this is as much as we can disclose at this point.

Okay. That's fair enough then. Looking at your product business from a broader perspective, your guidance indicating that product revenues will remain roughly flat is a positive sign given the challenging market conditions in the industrial and automotive sectors. To what extent do you believe we have moved past any inventory burn issues? We have observed some inventory reduction over the past few quarters. Are we mostly through that, or are there concerns about additional reductions ahead?

Yes, Richard, it's really hard to speculate on where the year is going to be. I think if I think about semiconductor and just being in semiconductor for a long time, typical downturns, you usually see them to be 4 to 5 quarters. And from that, we should see some uptick in the second half.

Okay, that's understandable. I'll take the last question and apologize for the interruption.

No, no, no, go ahead, Richard.

I have a quick question about lead times. I believe you mentioned that the company is now placing orders within lead times. Are we at the lead times that were in place before COVID for both your Toggle and STT products, or are they still declining to reach those levels?

So Richard, we've kept the lead times back to the pre-pandemic levels. They're roughly 26 to 27 weeks depending on which products you're looking at.

And our next question comes from the line of Quinn Bolton with Needham.

I would like to know if the decline in product sales this quarter was purely due to a decrease in units sold, or if there were any changes in the average selling price. I'm assuming both metrics will remain flat for the next quarter.

Yes, Nick, this is Sanjeev. We have not seen any ASP decline. It's mostly the demand or the softness in the Asia Pacific market and the Japan market, which is causing the lower volumes.

Okay. That makes sense. Regarding the PERSYST collaboration with IBM, could you provide any insights or size that opportunity, even though I understand it’s still early? Additionally, do you have any indication of timing?

So you might have seen the press release from us as well as IBM. They actually did launch their FCM4 already, so it's available in the marketplace today. In terms of our backlog, like Anuj mentioned, it's actually pretty healthy for 2024. It's up into the right compared to 2023, which is what we like to see. And I think basically consistent with the data center market, the increase in our backlog is reflective of that.

I am currently showing no further questions at this time. I'd like to hand the conference back to Sanjeev Aggarwal for closing remarks.

I would like to say thank you, everyone, for joining the call today, and we look forward to speaking to you at our next quarter earnings report. Thank you again for joining.

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