Everspin Technologies, Inc. — Q3 2023 Form 10-Q
Business context and period. Everspin develops and sells magnetoresistive random-access memory (MRAM) products and licenses related technology. This unaudited report covers the three and nine months ended September 30, 2023, compared with the same 2022 periods. Amounts below are in U.S. dollars; financial figures are in millions unless noted.
Financial performance and liquidity
- Q3 revenue: $16.47 million, up 8.0% year over year. Product sales fell 7.1% to $13.54 million; licensing, royalty, patent and other revenue rose to $2.92 million from $0.67 million, principally reflecting RAD-Hard licensing and customer development work.
- Q3 profit and margins: Gross profit was $9.92 million, with a 60.2% gross margin versus 58.8%. Operating income was $1.98 million (12.0% margin), and net income was $2.44 million versus $1.91 million. Diluted EPS was $0.11 versus $0.09.
- Nine-month revenue and profit: Revenue was $47.06 million, up 6.2%; product sales were nearly flat at $40.73 million, while licensing, royalty, patent and other revenue increased 65.4% to $6.33 million. Gross profit was $27.54 million and gross margin was 58.5% versus 58.4%. Operating income declined to $4.30 million from $5.68 million; net income increased to $7.08 million from $5.51 million. Diluted EPS was $0.33 versus $0.27.
- Cash flow: For the first nine months, operating cash flow was $11.09 million versus $4.26 million. Investing activities used $1.07 million, mainly for equipment; financing activities used $1.88 million, chiefly to repay debt. Cash increased $8.14 million to $34.93 million.
- Liquidity and debt: Current assets were $53.90 million and current liabilities $7.73 million at September 30. The 2019 credit facility was fully repaid in March; no debt was outstanding at quarter-end. Lease liabilities totaled $5.87 million. Management said cash and cash equivalents should cover anticipated capital requirements for at least the next 12 months, while noting future needs depend on growth, R&D and product plans.
- Other metric: Adjusted EBITDA, a non-GAAP measure, was $4.01 million for Q3 and $11.75 million for nine months, versus $3.37 million and $9.72 million, respectively. The nine-month 2023 figure includes the $2.0 million employee retention tax credit.
Material changes and management commentary
- Q3 revenue growth reflected higher licensing and other development revenue, partly offset by lower product sales. For nine months, RAD-Hard licensing revenue increased by $3.3 million; foundry-services revenue declined by $1.0 million.
- Q3 operating expenses rose 12.6% to $7.94 million. General and administrative expense increased 32.4%, primarily from professional services and depreciation; R&D declined 7.6% in the quarter but rose 6.9% for nine months, principally due to xSPI STT-MRAM development.
- Nine-month operating expenses increased 15.1% to $23.24 million, including higher G&A expense related to profit sharing, professional services and depreciation. Operating income declined despite higher revenue and gross margin.
- Other income was $2.85 million for nine months, primarily due to the $2.0 million ERTC recognized in Q2 and higher interest income, partly offset by a $0.17 million credit-facility prepayment and termination loss. The ERTC relates to 2020–2021 payroll periods; the company has received expected refunds, but eligibility may be audited through 2025.
- The RAD-Hard 2 agreement was amended in September 2023: expected consideration decreased from $6.5 million to $6.2 million, and services are expected to finish in 2023, subject to contract provisions. RAD-Hard 1 is expected to be completed in 2024; $0.5 million remained deferred at quarter-end.
- No formal financial guidance is provided in the supplied filing text. Management identifies revenue from licensing and royalties as variable and transaction-dependent. Disclosure controls were deemed effective at a reasonable-assurance level; the company reported no material legal proceedings.
Key risks and items to verify
- Customer and channel concentration: distributors represented 79% of Q3 revenue and 81% of nine-month revenue; the two largest end customers accounted for 22% and 18%, respectively, of revenue in those periods.
- Manufacturing and supply-chain dependence, including reliance on GLOBALFOUNDRIES for advanced-node products, capacity and yield constraints, component availability, and exposure to supplier pricing and delivery changes.
- Demand, adoption and profitability remain uncertain: design wins may take years to convert to sales, STT-MRAM adoption is relatively limited, and management cautions it may not sustain profitability. The company also says long-term funding needs may exceed available capital despite its 12-month liquidity assessment.
- Verify the durability of licensing and development revenue, the timing and completion of RAD-Hard projects, and whether product sales and customer demand recover or weaken.
- Verify the ERTC qualification and any audit developments, the effect of increased operating costs on operating income, inventory growth, and the company’s capital needs beyond the next 12 months.