Good afternoon and welcome to Everspin Technologies Third Quarter 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. At the conclusion of management's prepared remarks, instructions will be provided for the question-and-answer session. As a reminder, this conference call is being recorded. I would now like to turn the conference over to Cassidy Patterson, Investor Relations for Everspin.

Thank you, operator, and good afternoon, everyone. Everspin released results for the third quarter 2024, ended September 30, 2024, this afternoon after market close. I'm Cassidy Patterson, Investor Relations for Everspin. And with me on today's call are Sanjeev Agarwal, President and Chief Executive Officer; and Matt Tenorio, Interim Chief Financial Officer. Before we begin the call, I’d 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. The financial results discussed today reflect the company’s preliminary estimates and are based on the information available at 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 reconciliation 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. We are pleased to report our third quarter results with revenue of $12.1 million in line with our guidance, and EPS of $0.10 ahead of our guidance range. Contributing to our results were a number of key wins during the quarter, including the selection of our 1 gigabit PERSYST STT-MRAM for the IBM FlashCore Module 4 or FCM4, and the selection of a PERSYST Toggle MRAM for the Lucid Gravity SUV. We ended the quarter with a strong balance sheet, including cash of $39.6 million. Everspin had a number of key advancements and new contracts during the quarter, most notably with Frontgrade and a Department of Defense, or DoD contractor that demonstrates the strength of our business and breadth of our product portfolio. I'll start by discussing products for which we recognized revenue in the quarter before discussing new wins and other projects with future revenue potential. During the Q3, we started to receive orders and began to recognize revenue for the sale of our PERSYST 1 gigabit STT-MRAM into IBM's FlashCore Module 4, or FCM4, for data center applications. This is the 4th generation of IBM's FCM that has featured Everspin's 1 gigabit STT-MRAM solution. Our PERSYST solution delivers 2.7 gigabytes per second of both read and write bandwidth, coupled with non-volatility and a DDR4 like interface. We expect to provide parts for this product line for approximately the next 2 years. Everspin continued to see modest growth in its product revenue and design wins with its Toggle MRAM PERSYST products. We observed signs of inventory consumption at our customers and a sequential decrease in our distributor inventory. We are also pleased to share our continued strong traction with our 4 megabit to 128 megabit STT-MRAM…

Thank you, Sanjeev, and good afternoon, everyone. For the Q3, we are pleased to deliver quarterly results with revenue of $12.1 million in line with our guidance range of $11.5 million to $12.5 million compared to $16.5 million in the Q3 of 2023. MRAM product sales in the Q3, which include both Toggle and STT-MRAM revenue was $10.4 million compared to $13.5 million in Q3 '23. This year-over-year decrease was a result of a decline in product sales due to the timing of customer demand. Licensing, royalty, patent and other revenue in the Q3 decreased to $1.7 million compared to $2.9 million in Q3 '23 due to lower royalties and a decline in revenue from our RadHard projects. Turning to gross margin. Our GAAP gross margin was 49.2% for the Q3, down from 60.2% in Q3, 2023. The decrease was due to a decline in product sales and licensing revenue related to our RadHard deals. GAAP operating expenses for the Q3 of 2024 were $8.1 million compared to $7.9 million in the Q3, 2023. The slight increase in OpEx was largely due to expenses related to our new xSPI family of STT-MRAM products. In August, as Sanjeev mentioned, we announced a strategic award to develop a long term plan to provide manufacturing services for aerospace and defense segments. Pursuant to the award, Everspin may receive cash payments totaling up to approximately $14.6 million upon the achievement of certain technical tasks and deliverables over a span of 2.5 years. Due to the nature of the agreement and our performance obligations, we will recognize these payments over time as other income below the line. In the Q3 of 2024, the company recorded $4 million of other income relating to this award. Driven primarily by this award, we recorded third quarter GAAP net…

[Operator Instructions] Our first question comes from Quinn Bolton with Needham & Company.

Hey, this is Shadi Mitwalli dialing in from Quinn Bolton. Thanks for taking my question guys. I'd like to start-off on the onshore MRAM strategic award. Sorry, if I missed this, but are you guys able to give more details on why this is getting recognized in other income versus actual revenue?

Yes, thank you for the question. We analyzed the contract and the agreement and our performance obligations against the revenue recognition standard, ASC-606, and found that it did not squarely fit within that. Because of that, we have decided to recognize it as other income below the line.

And then my follow-up question is on gross margin. Gross margin was relatively flat sequentially, even though licensing revenue kicked up nicely. So I was wondering if you guys can give some more details on what kept margins flat.

I think, we continued to see the effect of the lower demand of our toggle products, which run through the Chandler Fab facility. So we are having to absorb the fixed cost associated with that facility against a smaller amount of units that are flowing through that fab. But as we sense forward, we would expect that to improve.

Our next question comes from Richard Shannon with Craig-Hallum.

I'm going to follow-up on the topic of the DoD contract you're recording in non-operating income here. I guess two questions from me. First of all, is this something that's recognized ratably every quarter, milestone based or otherwise? And then can you kind of maybe qualitatively or quantitatively describe how much is built into your guidance for the Q4?

Thank you, Richard. Yes, so as I said, it did not fit into the criteria of the accounting standard for revenue recognition. However, we analyzed and we are using some principles of the revenue recognition by analogy, meaning we will recognize it over the 2.5 years ratably based on the efforts and some of the milestones that are laid out in the agreement.

Okay. So I guess I'm trying to fit the numbers here into the guidance, trying to see how these work together here. And it seems to be implying either higher OpEx or lower gross margins, all the things being equal to kind of get to the midpoint of the EPS guide here. Is there dynamics that are hitting either of those categories that help explain this or is this just some conservatism built in here?

I think it might be a combination of both. We have factored in what we believe might be contributing from the DoD agreement that we've discussed, and we are also contributing some of the contribution that Sanjeev had mentioned with those other RadHard projects that we have and combined with our continued STT-MRAM data center strength.

And our next question comes from Richard Shannon with Craig-Hallum Capital Group.

All right. Well, lucky me, I get you right back in here. Let's see here, Sanjeev, maybe a question or 2 for you here. So Matt's guidance that he mentioned in his prepared remarks is for product revenues being flat here. Last quarter and again this quarter you talked about some signs of inventory to get the word used stabilization or improvement or whatever. But seeing flat products cadence here to the 4th quarter doesn't necessarily show that. Maybe you can just help us understand those dynamics here and then when should we expect to see sequential growth kind of layering in overtime and then maybe help us kind of build in how much the new PERSYST products are going to help you do that?

Yes, good question, Richard. So let me start with the PERSYST STT-MRAM product that we brought to the market last year. We continue to see design wins on that project with those products. But as you know, the qualification time is anywhere from 18 -- 12 to 18 months. So I don't think we're going to see significant product revenue from that part or that product line in Q4. But we do expect it to see some ramp in 2025. And as far as the product revenue with respect to our existing products, the Toggle MRAM and the 1 gigabit, we have a very modest growth built in going in from Q3 to Q4. It's just that the signals that we're seeing are very difficult to decipher. Some are positive and some are not so positive. So, there is some conservatism built into the plan over here.

Okay. Maybe touching on that last comment, any way you can describe where in markets, geography, where you're seeing this in the past, you've talked about some weakness in Europe and I think Japan. I think Japan maybe even hit by some currency dynamics there. Maybe you can help us kind of peel the layer back that one a little bit.

So I think, like we've discussed in the past, I think Japan continues to be a challenge. And then in Europe, you've seen that Germany seems to be going through some turmoil as well. So I think, those two combined are impacting our revenue profile for Q4 as well. So.

Our next question comes from Quinn Bolton with Needham & Company.

This is more of a technical question on MRAM's PERSYST family of products, but maybe can you guys clarify the differences between PERSYST, Unisys and AgILYST and then maybe talk about the different use cases and markets, those product lines specifically address.

I can give it a shot. So the PERSYST family, the way to think about it is, you're looking for very fast read and writes, and you're looking for a large number of read and writes. So for example, 10 to the 12, 10 to the 14th or larger read and writes. And you're looking for basically persistence in the operating temperature range, which is anywhere from minus 40 to 125 degrees C if it's automotive or minus 40 to 85 is if it's industrial grade. And that's the PERSYST family. That includes our one gigabit STT-MRAM that we are shipping to the IBM FlashCore modules. It includes the new product family that we brought to the market last year, the xSPI family that goes from 4 megabit to 128 megabit. And then our Toggle MRAM family, which is basically, we've been selling since our inception in 2008. So all of those products come into the PERSYST family, and they have this characteristics that I was talking about where you have fast data read and writes or data logging, and then unlimited number of read and writes in the operating temperature range, which could be automotive or industrial. The Unisys product family is basically, you're looking for not so many reads and writes. You're looking for, let's say a million to 10 million or a 100 million read and writes only. And you're looking for, again, fast read writes, that is the built-in advantage of SST-MRAM compared to other technologies out there that include, north Flash or nine flash or even resistive. So that's the Unisys family. That includes the triplets that I was talking about during my script, and it also includes any SOC type solutions using this type of product. And AgILYST is actually our forward looking, where we are still in a research environment. We are trying to build a fast data logging, zero standby current, and trying to match the speeds of an SRAM. And that's a project that we talked about with Purdue and the E Commons that we are just getting started and we are really excited to show what SST-MRAM can do over there. Now, backing up, PERSYST applications we should think of. Industrial automation like PLC computers. You can think of gaming, casino gaming and you can think of medical and aerospace and defense industry. For the Unisys products. You should think about automotive, FPGA, configuration memory and also industrial applications as well over there. And with the AgILYST, it's going to be mostly artificial intelligence, AI solutions on the edge. I think I can speak a lot more to it, but I think this is enough for now. So if you have any further questions, we can take it offline maybe, Shadi.

And our next question comes from Richard Shannon with Craig-Hallum.

Sanjeev, just one question for me, kind of touching on one of your prepared remarks and something you just mentioned here, but the Purdue program. Maybe you can talk to us a little bit about any more detail that what you expect out of this over what time, any sort of financial contributions to your model over time, etcetera?

So as far as the financial contributions over time, Richard, we haven't actually signed the contract with Purdue. So I don't have visibility into that, that I can talk about today. But as far as the output of the product is concerned, I think we're going to learn how to tune our STT-MRAM technology for AI solution. And one thing we already know is when you're looking for very fast read and write and you're looking for much higher signal margin for reads, because it's going to be a read intensive application. And then you got to basically build the fabric around it to be able to transfer the data from the edge to the center -- to the data center. I think that is what we're going to learn out of this. As far as the product is concerned, I think we'll take the learning and have to go and build a product outside of this project. This project is not going to lead to any product solutions that we can talk about today.

Thank you. I'm showing no further questions at this time. I would now like to turn it back to Sanjeev Aggarwal for closing remarks.

Thank you, operator. And I want to thank everyone again for joining the call today. I also want to take the advantage of those of you that are actually celebrating the Indian Festival Diwali. I want to wish you guys all a Happy Diwali. And also for those of you guys that are celebrating Halloween, Happy Halloween, and talk to you at the next earnings call. Thank you.

This concludes today's conference call. Thank you for participating. You may now disconnect.