Everspin Technologies, Inc. — FY2017 Form 10-K
Reporting period: Fiscal year ended December 31, 2017; filed March 15, 2018. The filing also reports fourth-quarter results. Everspin develops and sells magnetoresistive random access memory (MRAM), sensors, and related licenses and royalties for industrial, automotive, transportation, and enterprise-storage applications.
Financial performance
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $35.9 million | $27.1 million |
| Gross profit / margin | $21.5 million / 59.8% | $14.7 million / 54.3% |
| Operating expenses | $41.7 million | $30.2 million |
| Operating loss | $20.2 million | $15.5 million |
| Net loss | $21.1 million | $16.7 million |
| Adjusted EBITDA (non-GAAP) | $(15.6) million | $(11.4) million |
| Cash used in operating activities | $18.9 million | $18.5 million |
| Cash and cash equivalents at year-end | $13.0 million | $29.7 million |
| Working capital | $15.0 million | $29.1 million |
| Debt, current and long-term | $12.2 million | $8.1 million |
- Revenue rose 32.6%, led by a $7.1 million increase in product sales, primarily Toggle MRAM, and a $1.8 million increase in licensing and royalty revenue. The latter included $1.6 million of GLOBALFOUNDRIES development milestone revenue.
- Gross margin improved 5.5 percentage points, attributed primarily to Toggle MRAM sales and product mix. Operating expenses increased 38%, led by R&D, public-company costs, and higher staffing and development spending; consequently, operating and net losses widened.
- Fourth-quarter 2017 revenue was $10.1 million, gross profit $6.2 million, and net loss $4.4 million.
Liquidity, debt, and capital
- Operating cash outflow remained substantial; inventory increased to $9.8 million from $5.1 million, partly to support expected sales and a larger backlog. Investing cash outflow was $3.1 million, principally for equipment and software.
- The company replaced its prior Ares facility with a $12.0 million Silicon Valley Bank term loan in May 2017. The year-end carrying value was approximately $12.1 million; principal repayment was scheduled to begin in May 2018, with maturity in May 2020. The loan has a floating interest rate, a 6% end-of-term fee, financial covenants, and a security interest in substantially all assets except intellectual property. Everspin reported covenant compliance at year-end.
- In February 2018, Everspin completed a follow-on offering of 3,722,447 shares at $7.00 per share, receiving $24.8 million net of underwriting discounts and commissions but before offering costs. Management said cash, expected sales, and offering proceeds should fund requirements for at least 12 months from March 15, 2018; additional financing may still be needed.
Business developments, outlook, and risks
- The company reported its first sale of 40nm 256Mb STT-MRAM in Q4 2017 and planned to ramp production in 2018. Its 1Gb product remained in development, with development taking longer than expected; no 1Gb product sales had been made.
- Management expected R&D expenses to increase as it develops MRAM products and technology. The filing provides no quantified revenue, earnings, or margin guidance.
- Backlog was $13.7 million at year-end, versus $7.4 million a year earlier, but orders may be changed, delayed, or cancelled without significant penalty; management cautioned that backlog may not predict future sales.
- Key risks include ongoing losses and cash consumption; uncertain customer adoption and lengthy design-in cycles; falling semiconductor selling prices; customer concentration; and reliance on third parties, particularly GLOBALFOUNDRIES as the sole foundry for higher-density advanced-node products. Production yields, capacity, supplier pricing, and delays in 1Gb development could constrain growth or margins.
- Four end customers collectively accounted for 28% of FY2017 revenue; no individual end customer exceeded 10%. The company also described related-party dealings with GLOBALFOUNDRIES and Freescale/NXP, including manufacturing, development, and sales relationships.
- The 2017 Tax Act reduced the U.S. corporate rate; Everspin recorded a $14.8 million reduction in deferred tax assets offset by a corresponding valuation-allowance reduction, with no net financial-statement effect reported for 2017. The company maintained a full valuation allowance against net deferred tax assets.
- Management reported effective disclosure controls and effective internal control over financial reporting at year-end, and said previously identified material weaknesses had been remediated. The independent auditor gave an unqualified opinion on the financial statements; it did not provide an ICFR attestation because Everspin was an emerging growth company.
- No legal proceedings were identified as expected to have a material adverse effect. A notable subsequent event was a February 2018 repricing of 400,000 CEO options, producing $600,000 of incremental compensation value.
Important facts for investors to verify
- Whether 256Mb STT-MRAM production ramped as planned and whether 1Gb development and customer qualification progressed.
- Whether the higher backlog converted into shipments and cash collections, given cancellation rights and rising inventory.
- Cash burn, liquidity after the February 2018 offering, debt amortization, and compliance with lender covenants and revenue milestones.
- Revenue mix, customer and related-party concentration, and the recurrence of licensing and GLOBALFOUNDRIES milestone revenue.
- Impact of the new revenue-recognition standard adopted in 2018, particularly its treatment of distributor shipments and opening balances.