Everspin Technologies, Inc. — Q2 2021 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2021. Unaudited results; amounts below are in U.S. dollars unless stated otherwise. Everspin develops and sells non-volatile MRAM products and licenses related technology for industrial, medical, automotive, aerospace and data-center applications.
Key financial metrics
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Revenue | $11.85m | $11.83m | $22.13m | $21.93m |
| Gross profit / margin | $7.20m / 60.7% | $5.19m / 43.9% | $13.18m / 59.6% | $10.54m / 48.1% |
| Operating income (loss) | $0.46m | $(1.09)m | $0.17m | $(2.67)m |
| Net income (loss) | $0.26m | $(1.29)m | $(0.20)m | $(3.03)m |
| Adjusted EBITDA, non-GAAP | $1.52m | $0.25m | $2.35m | $(0.07)m |
| Operating cash flow | Not separately stated | Not separately stated | $1.08m | $(4.20)m |
Q2 diluted EPS was $0.01, versus $(0.07) a year earlier; six-month diluted EPS was $(0.01), versus $(0.16). Cash and cash equivalents were $14.22m at June 30, down from $14.60m at year-end 2020. Current assets were $31.39m and current liabilities $11.97m. Long-term debt had a net carrying value of $6.96m, including $4.31m current and $2.65m long-term; operating lease liabilities totaled $1.66m. The company reported a $157.4m accumulated deficit.
Changes versus the prior comparable period
- Q2 revenue was nearly flat: product sales declined 6.8% to $10.19m, while licensing, royalty and other revenue rose 84.8% to $1.66m, primarily due to U.S. Government RAD-Hard program contracts.
- For the first half, revenue increased 0.9%; product sales fell 6.4% to $19.26m, offset by licensing, royalty and other revenue growth to $2.87m.
- Gross margin improved to 60.7% in Q2 and 59.6% for the first half. Management attributed the improvement mainly to better manufacturing yields and a higher contribution from licensing and royalties.
- Q2 R&D expense rose 21% to $3.36m, primarily reflecting 28nm product development. First-half operating expenses were slightly lower year over year.
- First-half operating cash flow swung to positive $1.08m from negative $4.20m. Receivables increased $2.78m and inventory increased $0.85m; deferred revenue increased $1.82m.
Liquidity, outlook and notable items
- Management said cash, available credit-facility capacity and anticipated sales would cover expected cash requirements for at least 12 months. It cautioned that longer-term funding needs may require additional financing, which may not be available on acceptable terms.
- At June 30, the $5.0m revolving line had $2.0m outstanding and up to $3.0m available, subject to borrowing-base availability. Its maturity was extended from August 5, 2021 to August 5, 2022 by a July 28 amendment after quarter-end. The company reported compliance with credit covenants at June 30.
- A customer RAD-Hard development arrangement totals $6.5m. Everspin received a non-refundable $3.0m upfront payment; it recognized $1.2m in Q2 and reported $1.8m as current deferred revenue at quarter-end. Revenue is recognized over time based on costs incurred relative to expected contract costs.
- COVID-19 and the Delta variant continued to create demand and supply-chain uncertainty. Management cited factory shutdowns, weaker Toggle MRAM demand, particularly among industrial customers, and remote-work-related inefficiencies affecting manufacturing costs. A worldwide shortage of semiconductor and other electronic components could also constrain production and increase costs.
- Customer concentration is significant: four largest end customers represented 47% of first-half revenue. Two customers individually represented 19% and 43% of net receivables at June 30, respectively.
- The company disclosed an unresolved material weakness in inventory controls identified in connection with its 2020 annual financial statements. Remediation efforts were ongoing; management nevertheless concluded disclosure controls were effective at a reasonable-assurance level. The CEO and CFO roles were held by interim executives during the period; permanent leadership searches were planned.
- Management reported 77 design wins in the first half, compared with 80 in the first half of 2020. No material legal proceedings were reported.
Important facts for investors to verify
- Whether improved yields and gross margins persist, and whether product sales recover from their year-over-year decline.
- How much reported revenue and cash generation depend on variable licensing and RAD-Hard contract activity, including future recognition of deferred revenue.
- Receivables collectability, inventory quality and progress in remediating the inventory-control material weakness.
- Actual borrowing-base availability, debt repayment requirements and compliance with minimum-cash and other lender covenants.
- Effects of COVID-19, component shortages, reliance on third-party manufacturing, and significant customer concentration on demand, deliveries and margins.