Everspin Technologies, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; filed May 12, 2022. Everspin develops and sells magnetoresistive random-access memory (MRAM) products and licenses related technology for industrial, medical, automotive/transportation, aerospace and data-center markets.
Financial performance and position
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Total revenue | $14.347 million | $10.280 million; up 39.6% |
| Gross profit / margin | $8.323 million / 58.0% | $5.985 million / 58.2% |
| Operating expenses | $6.299 million | $6.269 million |
| Operating income (loss) | $2.024 million | $(0.284) million |
| Net income (loss) | $1.935 million; $0.10 basic and $0.09 diluted EPS | $(0.460) million; $(0.02) EPS |
| Adjusted EBITDA | $3.092 million | $0.818 million |
| Operating cash flow | $(0.971) million | $1.651 million provided |
| Cash and cash equivalents | $19.885 million at March 31 | $21.409 million at December 31, 2021 |
| Debt | $4.420 million principal; $4.331 million net carrying value | $5.020 million principal at December 31, 2021 |
Cash used in investing and financing was $0.022 million and $0.531 million, respectively. Cash declined by $1.524 million during the quarter. Operating cash use reflected working-capital outflows, notably a $2.047 million increase in accounts receivable and a $2.014 million decrease in accrued liabilities, despite reported net income. Current assets were $36.969 million and current liabilities $8.540 million. The company reported $4.0 million available under its revolving line, subject to borrowing-base availability.
Changes versus the prior comparable period
- Revenue growth was driven mainly by product sales, up 39.7% to $12.671 million, reflecting higher unit volume and selling-price increases to offset supplier price increases. Licensing, royalty, patent and other revenue rose 38.3% to $1.676 million, partly due to a RAD-Hard development and licensing contract.
- Gross margin was nearly flat but edged down from 58.2% to 58.0%; management attributed the decline primarily to supplier price increases.
- Operating expenses were broadly stable. Research and development was essentially unchanged, general and administrative expense declined 4.0%, and sales and marketing expense increased 14.9%.
- Interest expense fell 50.7% to $75,000, which management attributed to lower outstanding credit-facility balances.
- Operating cash flow shifted from a $1.651 million inflow to a $0.971 million outflow, despite the move to net income.
Outlook, risks and notable items
- Liquidity outlook: Management said existing cash, anticipated growth and sales levels, and credit-facility availability should meet anticipated cash requirements for at least the next 12 months. It cautioned that future capital needs depend on growth, R&D, sales and marketing investment, and new products; additional financing may be needed and may not be available on acceptable terms.
- No quantified guidance: The filing provides no specific revenue, earnings or margin guidance. Management said it was planning for a broad range of demand outcomes.
- COVID-19 and supply chain: Factory shutdowns, particularly in parts of Asia, disrupted supply and demand patterns and slowed Toggle MRAM demand, especially from industrial customers. The company also cited labor constraints, inflation and higher supplier costs; the full effects remained uncertain.
- Customer and supplier concentration: Four largest end customers represented 34% of Q1 revenue. One direct purchasing customer represented 18% of revenue and 46% of net receivables. Everspin relies on third parties, including GLOBALFOUNDRIES for higher-density products, and disclosed risks from capacity, pricing, delivery and manufacturing dependencies.
- Debt and covenants: The credit facility is secured by substantially all assets except intellectual property and restricts certain actions, including additional debt, asset sales and dividends. The company was in compliance with covenants at quarter-end. The revolving line was scheduled to mature August 5, 2022; the term loan matures June 1, 2023.
- Contract and leases: A $6.5 million RAD-Hard customer arrangement had $0.3 million deferred revenue at quarter-end; $2.6 million of transaction price remained to be recognized as services are performed, with completion expected in 2024. Lease liabilities totaled $3.839 million, including $0.942 million current.
- Internal controls: Management concluded disclosure controls were not effective at the reasonable-assurance level due to a material weakness in inventory controls, including unit-cost allocation and communication between operations and accounting. Remediation actions were underway; the weakness had not been reported as remediated.
- Other: Sanjeev Aggarwal became permanent CEO effective March 14, 2022. The company reported no material legal proceedings and no off-balance-sheet arrangements.
Key investor verification points
- Whether the inventory-control material weakness is remediated and whether the remediation holds up in subsequent filings.
- Whether receivables convert to cash and operating cash flow improves after the quarter’s working-capital outflows.
- Whether product-sales growth and margins persist amid supplier inflation, semiconductor constraints and uncertain industrial demand.
- Whether customer concentration and reliance on third-party manufacturing create delivery, pricing or collection risks.
- Availability and terms of the revolving credit line at maturity, compliance with covenants, and the company’s ability to meet debt repayments.
- Progress, costs and revenue recognition for the RAD-Hard contract, including whether estimated costs and the 2024 completion timetable change.