Everspin Technologies, Inc. — Q2 2020 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2020. Amounts below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise. Everspin develops and sells non-volatile MRAM products and licenses related technology for industrial, automotive, transportation, and enterprise storage markets.
Financial performance
- Q2 revenue: $11.83 million, up 36.8% from $8.65 million a year earlier. Product sales rose 36.5% to $10.93 million; licensing, royalty, and other revenue was $0.90 million.
- Six-month revenue: $21.93 million, up 17.5% from $18.67 million. Product sales increased 20.8% to $20.56 million, while licensing, royalty, and other revenue declined 16.6% to $1.37 million.
- Gross margin: Q2 was 43.9%, compared with 46.5% in Q2 2019; the filing attributes the decrease primarily to delays in cost-reduction projects for the 1Gb STT-MRAM product. First-half margin improved to 48.1% from 47.2%, reflecting better yields on mature products.
- Operating expenses: Q2 fell 17.5% to $6.28 million; first-half expenses fell 20.3% to $13.21 million. Reductions reflected lower development spending and the 2019 restructuring.
- Net loss: Q2 was $1.29 million ($0.07 per share), versus $3.67 million ($0.21 per share). First-half net loss was $3.03 million ($0.16 per share), versus $7.93 million ($0.46 per share).
- Adjusted EBITDA, a non-GAAP measure: Q2 was positive $0.20 million versus negative $2.20 million; first-half was negative $0.15 million versus negative $5.15 million.
- Cash flow: First-half operating cash use was $4.20 million, versus $4.79 million. Investing cash use was $0.28 million; financing provided $2.91 million, including $2.08 million net ATM proceeds. Cash declined $1.57 million to $12.92 million.
- Liquidity and debt: Current assets were $29.12 million and current liabilities $6.13 million. Credit-facility principal was $8.42 million; net carrying value was $7.97 million. The revolving line had $3.0 million remaining available, subject to borrowing-base availability. Everspin reported compliance with debt covenants at June 30.
Material changes and notable items
- Revenue growth was concentrated geographically: APJ revenue increased to $8.39 million in Q2 from $3.02 million, while North America and EMEA revenue declined. A single customer represented 34% of Q2 revenue and 53% of receivables at June 30.
- Management reported 80 design wins in the first half of 2020, versus 27 in the first half of 2019.
- The company completed its corporate restructuring activity by June 30; the plan included an approximately 15% headcount reduction. First-half severance and benefit payments were $0.7 million.
- The ATM offering was suspended in March. At June 30, $17.7 million of offering capacity remained available, but further sales were not then active.
- In July, the lender amendment extended the term loan’s interest-only period from 12 to 16 months and lowered rate floors. Everspin also issued the lender a warrant for 21,500 shares at $0.01 per share.
Outlook, risks, and controls
- Management said cash, anticipated sales and growth, and available revolving credit were expected to fund requirements for at least 12 months from the financial-statement issuance date. The filing cautions that future funding may be needed and may not be available on acceptable terms.
- The restructuring plan targeted quarterly cash-flow break-even by the end of 2020. This is a target, not formal revenue or earnings guidance; management said achievement depends on expense control, revenue growth, and product cost reductions.
- COVID-19 had disrupted electronics supply chains and demand, slowed Toggle demand—particularly from industrial customers—and delayed manufacturing cost-reduction work. Management said visibility into future demand remained limited.
- Key risks include continued losses, customer and geographic concentration, competition and price erosion, reliance on third-party manufacturing (including a single foundry for advanced-node products), yield and inventory risks, and debt covenant requirements. The company reported an accumulated deficit of $151.7 million.
- No material legal proceedings were reported. Management said disclosure controls were effective at the reasonable-assurance level. A previously identified material weakness related to inventory controls and financial reporting was still being remediated; a new ERP system was implemented January 1, 2020.
Important facts for investors to verify
- Whether the Q2 revenue growth and design wins translate into sustained orders, particularly given customer concentration and the sharp APJ increase.
- Whether gross margin recovers as delayed 1Gb STT-MRAM cost-reduction projects progress, and how COVID-19 affects demand, yields, and costs.
- Cash burn, availability under the borrowing-base-dependent revolver, debt covenant headroom, and the effect of the July credit amendment and warrant.
- Progress toward the end-of-2020 quarterly cash-flow break-even target and whether further equity or debt financing will be required.
- Whether inventory-control remediation and the new ERP system resolve the previously identified material weakness.