Everspin Technologies, Inc. — 2019 Form 10-K
Reporting period: Fiscal year ended December 31, 2019; comparisons are with fiscal 2018. This filing reports annual results, not standalone fourth-quarter results. Everspin develops and sells nonvolatile MRAM products and related technology licenses, royalties, and foundry services.
Financial performance and position
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Revenue | $37.5 million | $49.4 million | Down 24.1% |
| Product sales | $34.6 million | $39.5 million | Down 12.4% |
| Licensing, royalty and other revenue | $2.9 million | $9.9 million | Down 70.6% |
| Gross profit / margin | $18.3 million / 48.9% | $25.3 million / 51.3% | Margin down 2.4 percentage points |
| Operating loss | $14.4 million | $17.3 million | Loss narrowed |
| Net loss | $14.7 million; $0.85 per share | $17.8 million; $1.08 per share | Loss narrowed |
| Cash used in operating activities | $8.1 million | $14.7 million | Use decreased |
| Cash and cash equivalents at year-end | $14.5 million | $23.4 million | Down $8.9 million |
- Operating expenses were $32.7 million, down from $42.7 million, largely reflecting a $9.5 million reduction in R&D spending. The company recorded $0.8 million of restructuring costs.
- Capital expenditures were $0.9 million. Financing cash flow was $0.1 million provided, versus $27.0 million provided in 2018, which included a $24.5 million net follow-on offering.
- At year-end, total debt carrying value was $7.8 million, representing $8.4 million principal less unamortized discounts. The credit facility was secured by substantially all assets except intellectual property. The company reported $3.0 million of line-of-credit availability, subject to borrowing-base limits, and compliance with covenants.
- Current assets were $28.7 million and current liabilities $7.9 million. Backlog was $16.2 million, compared with $13.0 million a year earlier; orders may be changed or cancelled and are not a reliable forecast of sales.
Material changes and management commentary
- Management attributed lower revenue to broad semiconductor demand challenges, data-center build cyclicality, international trade conflicts, reduced sales after losing a customer, and the end of an automotive program. One-time 2018 licensing and royalty revenue did not recur.
- Product margins improved as manufacturing yields rose during 2019, but the absence of the 2018 license fee—which had no associated cost of sales—contributed to the lower reported gross margin.
- R&D expenses fell partly because of lower GLOBALFOUNDRIES development spending, timing of materials purchases, and lower headcount. The company extended its GLOBALFOUNDRIES development agreement in December 2019 to include 12nm MRAM development.
- Design wins increased during the year: 14 in each of the first two quarters, 22 in the third, and 34 in the fourth.
- The company reduced its workforce by approximately 15 positions as part of a restructuring intended to support long-term sustainability. The $0.8 million charge was cash-related and primarily expected to be paid in 2020.
- Management stated that cash, expected sales and growth, and credit-line availability were expected to fund requirements for at least 12 months. It also expected operating losses and cash-flow deficits to continue for the foreseeable future and warned that additional financing may be needed.
Outlook, risks and unusual items
- No specific revenue, earnings, or margin guidance is provided. Management’s outlook depends on customer adoption of STT-MRAM products, design wins converting to orders, and successful product and technology development.
- Key risks include continuing losses, limited cash and potential future financing needs; competition and price erosion; dependence on distributors and third-party manufacturers, including GLOBALFOUNDRIES for advanced-node products; customer concentration; and the lengthy customer qualification and design-win process.
- Four largest end customers represented 22% of 2019 revenue, versus 29% in 2018; one customer exceeded 10% of revenue in 2019. Supply interruptions, lower customer demand, or lost orders could materially affect results.
- The filing discusses COVID-19 as of March 2020: Everspin had seen some slowdown in demand growth after factory shutdowns in China, but reported its supply chain operating as usual and said future impacts remained uncertain.
- Management concluded that disclosure controls and internal control over financial reporting were not effective at year-end because of a continuing material weakness involving inventory tracking at third-party locations, operational-finance communication, and experienced finance personnel. Remediation actions were underway, including ERP and inventory-process improvements and additional staffing.
- The independent auditor issued an unqualified opinion on the financial statements. The auditor did not attest to internal-control effectiveness; Everspin cited its emerging-growth-company exemption.
- Management’s Adjusted EBITDA reconciliation reports a 2019 loss of $7.9 million, while the narrative elsewhere states a loss of $8.4 million. The filing text does not explain this difference.
Important facts for investors to verify
- Whether the company can maintain liquidity and meet credit-facility covenants as losses and cash-flow deficits continue; verify borrowing-base availability and debt repayment requirements.
- Whether design wins and rising quarterly wins convert into sustained product sales, particularly for 256Mb and 1Gb STT-MRAM.
- Whether the 2019 revenue decline stabilizes and product-yield improvements can offset pricing pressure and changes in product mix.
- Whether the inventory-control material weakness is fully remediated and financial reporting controls become effective.
- The cause of the $0.5 million difference between the Adjusted EBITDA narrative and reconciliation, and the extent of any subsequent COVID-19 effects on demand or supply.