Everspin Technologies, Inc. — Q1 2021 Form 10-Q
Reporting period: Three months ended March 31, 2021; comparisons are with Q1 2020 unless stated otherwise. Everspin develops and sells non-volatile MRAM products and licenses related technology for industrial, automotive, transportation, aerospace, medical and data-center markets. Figures below are in U.S. dollars.
Financial results and liquidity
| Metric | Q1 2021 | Q1 2020 / prior date |
|---|---|---|
| Total revenue | $10.280 million | $10.108 million |
| Product sales | $9.068 million | $9.635 million |
| Licensing, royalty and other revenue | $1.212 million | $0.473 million |
| Gross profit / gross margin | $5.985 million / 58.2% | $5.351 million / 52.9% |
| Operating expenses | $6.269 million | $6.933 million |
| Operating loss | $0.284 million | $1.582 million |
| Net loss | $0.460 million | $1.732 million |
| Basic and diluted loss per share | $0.02 | $0.10 |
| Adjusted EBITDA (non-GAAP) | $0.818 million | $(0.346) million |
| Cash from operating activities | $1.651 million | $(2.555) million |
| Cash and cash equivalents (March 31 / December 31) | $15.485 million | $14.599 million |
At March 31, total assets were $35.066 million, total liabilities $16.863 million, and stockholders’ equity $18.203 million. The company reported $7.820 million of credit-facility principal outstanding, with a net carrying value of $7.476 million after debt discounts. The revolving line had $2.0 million drawn and $3.0 million nominally available, subject to borrowing-base availability; it matures August 5, 2021. The term loan matures June 1, 2023. The company said it was in covenant compliance.
Operating cash flow included a $3.0 million increase in deferred revenue and was partly offset by a $2.7 million increase in accounts receivable. Investing activities used $0.309 million, mainly for equipment; financing activities used $0.456 million, including $0.600 million of debt payments. The filing reports an accumulated deficit of $157.634 million.
Material changes versus Q1 2020
- Revenue increased 1.7%, although product sales fell 5.9% as unit volume declined. Licensing, royalty and other revenue rose by $0.739 million, primarily from a royalty catch-up.
- Gross margin improved to 58.2% from 52.9%, attributed to higher royalty revenue without associated cost of sales and improved manufacturing yields; cost of sales fell 9.7%.
- Operating expenses declined 9.6%, mainly from lower research and development spending on supplies and software. Sales and marketing costs also declined following the January 2020 restructuring.
- Net loss narrowed by $1.272 million. Operating cash flow turned positive, but benefited materially from the $3.0 million customer advance recorded as deferred revenue.
- Revenue from distributors was $7.866 million, up from $6.990 million; distributor sales represented 77% of revenue, compared with 69%.
Outlook, management commentary and risks
- Management believes cash, available credit and anticipated sales will fund expected cash requirements for at least 12 months from issuance of the financial statements. No numerical revenue or earnings guidance was provided. Management cautions that future capital needs depend on growth, R&D, sales investment and product launches, and additional financing may not be available on acceptable terms.
- A customer agreement signed in Q1 covers development of a radiation-hardened product and related licenses, for total consideration of $6.5 million. Everspin received a non-refundable $3.0 million upfront payment, recorded as current deferred revenue. No Q1 revenue was recognized; the company expected recognition to begin in Q2 2021 over the performance period.
- COVID-19 continued to disrupt supply chains and demand, particularly Toggle MRAM demand from industrial customers. Remote work also affected manufacturing problem-solving and costs. Management said the ultimate impact remained uncertain.
- Customer concentration is material: the four largest end customers accounted for 44% of Q1 revenue. The customer concentration note reports one customer at 27% of revenue and 39% of net receivables. This dependence, along with distributor exposure and receivables collection timing, may amplify demand or credit changes.
- Manufacturing and supply risks include reliance on third parties and a single foundry for higher-density products, potential capacity constraints, cost increases and yield issues. Initial production under the Silterra collaboration, previously expected in 2020, was delayed and then anticipated during 2021.
- The revolving credit line’s August 2021 maturity is near-term. Debt is secured by substantially all assets other than intellectual property and includes minimum-cash and availability requirements and other operating restrictions.
- The company disclosed a material weakness in inventory controls, identified during preparation of its 2020 annual financial statements. Remediation was underway as of March 31, 2021; management said disclosure controls were effective at a reasonable-assurance level. Management continued to monitor and enhance inventory controls.
- Leadership transitions were ongoing: Darin Billerbeck served as interim CEO, and Anuj Aggarwal was appointed interim CFO on April 30, 2021. The board planned searches for permanent successors.
- No material legal proceedings were reported. The filing also identifies risks from continuing losses, competition, product adoption and design wins, supply disruptions, and the need for possible future financing.
Most important facts for investors to verify
- Whether the $3.0 million advance converts to revenue on the expected schedule and whether the underlying development arrangement meets milestones.
- How much of operating cash flow is repeatable after excluding deferred-revenue timing, and whether receivables are collected as expected.
- Availability and refinancing or repayment plans for the revolving line maturing August 5, 2021, including compliance with credit-facility cash and borrowing-base requirements.
- Progress in remediating the inventory-control material weakness and whether future filings report successful remediation.
- Customer concentration, distributor demand, COVID-related supply and demand trends, manufacturing yields, and the timing of Silterra production.
- Permanent CEO and CFO appointments and any resulting changes to operating priorities or financing plans.