Everspin Technologies, Inc. — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless otherwise noted. Everspin develops and sells MRAM products and licenses related technology for industrial, medical, automotive/transportation, aerospace, and data-center markets. Amounts below are in U.S. dollars; financial-statement amounts are in millions unless stated otherwise.
Financial performance and liquidity
| Metric | Q1 2023 | Q1 2022 / prior date |
|---|---|---|
| Revenue | $14.846 million | $14.347 million |
| Gross profit / margin | $8.430 million / 56.8% | $8.323 million / 58.0% |
| Operating expenses | $7.734 million | $6.299 million |
| Operating income | $0.696 million | $2.024 million |
| Net income | $0.761 million; $0.04 basic and diluted EPS | $1.935 million; $0.10 basic and $0.09 diluted EPS |
| Adjusted EBITDA (non-GAAP) | $2.317 million | $3.092 million |
| Operating cash flow | $1.204 million provided | $0.971 million used |
| Capital expenditures | $1.011 million | $0.022 million |
| Cash and cash equivalents | $24.211 million at March 31 | $26.795 million at December 31, 2022 |
| Debt | No outstanding debt | $2.594 million current debt at December 31, 2022 |
| Current assets / current liabilities | $42.184 million / $6.259 million | $44.747 million / $10.875 million at December 31, 2022 |
Material changes versus Q1 2022
- Revenue grew 3.5%, as product sales rose 8.7% to $13.777 million. Management attributed product growth to higher Toggle unit volume and average selling-price increases intended to offset supplier cost increases.
- Licensing, royalty, patent, and other revenue fell 36.2% to $1.069 million, primarily because foundry-services revenue declined. Revenue mix shifted toward products; distributor revenue was 87% of total, versus 75% a year earlier.
- Gross margin declined to 56.8% from 58.0%, reflecting supplier price increases and a lower contribution from licensing, royalty, patent, and other revenue. Operating expenses increased 22.8% overall, including a 31.3% increase in R&D, primarily for the new xSPI STT-MRAM product family. As a result, operating income and net income were lower.
- Cash from operations improved from a use of $0.971 million to generation of $1.204 million. Investing outflows increased to $1.011 million, primarily for manufacturing equipment.
- The company paid off its 2019 credit facility in March, making a $2.790 million debt payment and recording a $0.170 million early termination and prepayment loss. Cash declined by $2.584 million during the quarter.
Outlook, commentary, and risks
- Management said cash and cash equivalents are sufficient for anticipated capital requirements over the next 12 months. It cautioned that longer-term requirements depend on growth, R&D spending, sales and marketing investment, and new-product introductions; additional funding may be needed, with no committed funding source.
- The company reported no formal revenue or earnings guidance in the provided filing text. It expects to recognize the remaining $1.3 million transaction price on its RAD-Hard 1 development contract as services are performed, with completion expected in 2024. A separate RAD-Hard 2 contract is also expected to run through 2024, subject to contractual provisions.
- Key exposures include semiconductor-industry cyclicality and uncertain demand, customer concentration, supplier and foundry dependence (including a single foundry for advanced-node products), supply constraints and pricing, manufacturing yields, competition, and the uncertain adoption and commercialization of STT-MRAM. Four largest end customers accounted for 29% of Q1 2023 revenue.
- Management noted continuing uncertainty from macroeconomic conditions, inflation, geopolitical events, and COVID-related supply-chain effects. The company said disclosure controls were effective at a reasonable-assurance level as of March 31, 2023, and reported no material change in internal control over financial reporting during the quarter. It reported no material legal proceedings.
Important facts for investors to verify
- Whether product-sales growth and new xSPI STT-MRAM development translate into sustained revenue and improved profitability, given rising operating expenses and lower gross margin.
- Customer concentration and distributor dependence, including the durability of demand from major customers and the possibility of order changes or cancellations.
- Supplier pricing, manufacturing yields, and GLOBALFOUNDRIES capacity and supply arrangements, particularly for advanced-node products.
- Cash use and capital requirements after the debt payoff, including whether management’s 12-month liquidity assessment remains supportable as investment needs change.
- Timing and collectability of contract billings and future revenue recognition for the RAD-Hard development arrangements.