NLST - Earnings call transcript Q3 2017

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Operator

Good day and welcome to Netlist Third Quarter 2017 Earnings Conference Call. All CEO participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mike Smargiassi, Investor Relations. Please go ahead.

Mike Smargiassi

good and Rachael, you, afternoon, everyone. Thank Netlist’s to third quarter call. conference XXXX Welcome today’s Hong, Sasaki, and Chuck will Chief Executive Officer. Leading be Netlist; Chief call Officer of Financial Gail

today’s earnings section Investors the Netlist a reminder, on netlist.com. of release at a be accessed our replay As of call website could the and

forward-looking uncertainties in statements filings the and risks today. differ update because are of would contained the actual start answers statements. no SEC include press the number may to call, I that today’s of from and based current of The assume and note current statements materially which expectations. to We on we could in in Before are cautionary call, Netlist’s projected release presentation the expressed results questions forward-looking obligation annual that the forward-looking the results the those statements, and

will During now over the included discussed. be Reconciliations this for release, are to Form press I financial which on non-GAAP directly measures the in call GAAP to filed turn X-K. call, financial measures Chuck. comparable those like was would

Chuck Hong

good and Mike afternoon, everyone. Thanks,

with comment start commercialization and Yesterday as update Denver. second call against our we the today I’ll action ITC we remarks Trade and an in the for HybriDIMM will We with efforts filed of on our Commission. hynix. SK plans compliant Supercomputing on our actions final quarter XXXX at XXXX the our performance. the also licensing The International efforts commenced proceeding Gail formal our is conclude will anticipated conference initial stop with September as third as whether to exclusion validity U.S. in a review issues The directs will LRDIMM entering an of should our and to recommendation include ID ID determination and judge's Sk U.S. unauthorized infringement IP. issue address step customs of hynix’s use November products overall significant also from SK RDIMM the a that such role order hynix’s expected XX. address on determination initial a pervasive or will the The effort Netlist’s number to and patent and mark in

how look server forward The in to proceedings pleased hynix filing gone latest and a against and our our SK ITC to announced position the SK products are Further of brings ITC bolster to patents the the thus which against with in of hynix's have the was of patents in hynix. We memory action our the new this seeing ID. continuing add portfolio. of some we address to and the This two investigation table yesterday the action the far and strategy our U.S. abroad. the both infringement in legal prolonged patents new as SK taken asserted part overall and strongest

of in been with hynix court our mandated ongoing settlement via as the and negotiations proceedings licensing have SK efforts. We part

fairly plan stronger value resolution element suites overall of achieve the another patents. to adds China. resolved for our important X in is Germany property. ITC X the of which that filed a and strategy with ITC full with are We intellectual Netlist compensates an even important along

least multiple have a historical generate Our continues patents. track analysts or months margin the validated LRDIMM, and the and nine to event hynix our over $X sales SK without the reap among strategy are infringe actions. semiconductor profits in compensating at highest revenues and our powered these in single RDIMM in profits as continue company is by the which sold patents back XX% XXXX. We hynix the generating third SK memory hynix gross using enforcement plus a financial estimate allow the hynix in into Netlist enormous and the next and in RDIMMS growth technology. to position of this margins to from on in dependent from to operating products will part worldwide world. so large SK we have that Netlist massive over SK part year to $X generate profit server largest properly cannot to opportunities amounting is action benefits hynix and billion billion by LRDIMMS almost on various in on Netlist moved These success on achieved them historic not shareholders. have SK has rather IP or its

in provide Now on XX of Denver. November preview I HybriDIMM update the show brief efforts taking would an a like and in for you place our commercialization the supercomputing to of week

Samsung. Over where a our team included with HybriDIMM negotiations technical meetings of potential to held and the phase past X we well of partners. of phase encouraged to partners held members Korea HybriDIMM regards commercialization. we as level weeks spoke in with other from trip discussions were of This as potential several has a next We by with number on interest the RJDLA Samsung of

related step HybriDIMM, this of include As engineering next a we expect revenue revenue with per-unit future we and may take royalties. additional to opportunities which have number

of two throughout industry. cost Memory to operations the with multiple HybriDIMM’s Storage while of solution. the In-Memory of have to The in intelligence our Redis a recently benefits HybriDIMM achieve pleased select impact will and like evaluation exercises encompass progress regards future comprehensive discussions two the in in product server will HybriDIMM. applications important the and memory intellectual applications our are IP memory which property with memory In part call to live no to HybriDIMM review. channel is of datacenters. of our and MongoDB big memory the which good simultaneous class and positions to hyper with also showcase an to growth first memory NVDIMM we in interest pushing There database We our persistent to customers in products utilizes XXXX, creation. storage the summary concurrently believe a datacenters applications memory and steadily our the industry's for on systems and in demo big by industry capabilities demand storage explosion the HybriDIMM scale performance be of true solution memory the At our At and XX. expected the channel working turn these is financial SC ideal capabilities new efforts an for semantics growing to cloud-based memory moving and making memory Storage I now artificial a from data database will efforts to Class demonstrate the be growth of of block meet driven license the decision hybrid making the breakthrough for We data products the shipped to The value forward ODM major access modes. the Memory technology application storage at and are a commercialization Gail we industry an HybriDIMM a significant forefront the conference operating for in-memory including over ITC significant are plan are continues Supercomputing server first expanded utilization will Taiwan. weeks. partners computing Class a the

Gail Sasaki

Thanks Chuck.

orders XXXX quarter. revenues last months DRAM XXXX, third growth year-over-year the top-line, and grade the SSD increase year-over-year were product accompanied and decline our The third the we we enterprise high the compared revenue and from specialty $X increased modules of Inspur. the on revenue to year's We of our sourced the double ended from sale capacity from experience benefit substantial EVX quarterly delivered shipments quarterly once saturated. quarter did hybrid the SSDs growth from again revenues the Samsung in has by September high become period. density for For DIMM member for in in last quarter the market since XX, for enterprise ongoing steady million more three more for a as Revenues million, product primarily $X.X performance than reflects to

for sourced new continue customers do add our these our we from for of as XXX revenue well to DRAM. Samsung as base However, products growing over

although from Inspur guide anticipate don't year. of product the firmly We forecasting during than currently we better and also this be revenue quarter more revenue quarter first are first to we third quarter EVX

with which gross XX due profit than third quality which prior a and were revenue quarter even for to from demand year-over-year. are XXX,XXX, built our which factory dollars by million also Third own loss to the by was XX, revenue XX% $X.X and which year earlier burn we in greater decreases end in mix our margin management. compared declined absolute offerings a the turn equivalents QX cost and have addition margin significant million factory the the and was Net improvement mix increased to DIMM reflecting in our last in We were due cash to quarter $X.X $X.X million sales in expenses specifically profitable was million quarter. of million of at both a Overall our the $X.X a XXXX. the R&D Operating of of mainly a year-over-year as to the and restricted well as $X.X $X.X net quarter cash compared $XX to across million the due consecutively. quarter improvement as on position in to of reflects and third cash million increased compared from proactive The and of quarter rate. $X.X cash reduction ongoing cash million cash is QX charges. better XXXX mentioned $X.X year's related third product XX% loss less compared SG&A second an second a basis growth and though ended overhead million Expenses net higher quarter period recent in

We continue operating proactively to overall but cash our manage cycle. our only expenses not

cash well million in XXXX. burn during $X.X result a rate average our quarter burn $X.X was below half As per quarter first of the third of

the reduced quarter this of due and arrangement million have of a our realized $X.X benefit total TRGP benefit third we expenses the in $X.X financial with to-date. from arrangement During realized to also million legal

available line XX% capital with of total in volumes. a our capital capped increase $X working accounts our support of Valley product receivable Silicon balance working Our and million, for capacity by is the business credit Bank to of eligible has

Denver Finally, taking Supercomputing at the be we place XXXX in XX. XX conference the through November will

Roth and forward and Thank Access and the XX questions. ready to be both In that you XX week for events. Technology seeing these Day you at taking on York place addition are in for the We [indiscernible] conference we November Operator, now during Corporate will we look respectively. same attending listening. New

Operator

[Operator with question please Shannon ahead. Richard from Instruction] comes Hallum, first go Craig The

Richard Shannon

taking Well, hi you questions. Gail. Chuck and for Thank my

and the potential third looking at for Let's quarter fourth one here. quarter the start

a like internal brand Netlist more here you sounds you in give products us products it here. Samsung Samsung little here a on? decline both had up and going Can little scale ramping bit the but a revenue So sales of bit on sense of lower

Gail Sasaki

of a specialty of dollar slight against by DRAM an Samsung from The million Sure. I think about mitigated an of SSDs Samsung EVX. increase increased, a decline was and

Richard Shannon

your does from these That's Inspur Okay. partner a orders AG, you specifically helpful us also growth the this qualification kind expectation some on or in mentioned here and of sampling this production give and and XXXX? of is you how sense into activity then out going some or translate going of there, EVX advanced can

Chuck Hong

Yes a run-rate Richard. about quarter-over-quarter units in the growing are we think we of year Inspur year that million and I QX. nicely talked from run-rate The and the are beginning on a now had since of dollars

that customers to we server their to they orders from continue on up expect continue, We continue see numbers year. so with half first of lot Inspur expect of to to next go the EVX, EV a

Richard Shannon

Okay. have Inspur visibility do channel OEM into you ramping? or for other EVX, direct have customers is you primary And partner the any

Chuck Hong

have we efforts handful of qualification Yes, at others.

have. Inspur is wise and best the I we visibility customer think traction

Richard Shannon

then and a here out there inflection coming you broadly the there. doing and kind That looks have a up give see we might market that's traction traction XX the show sense so SC like your some there? mentioned us can quickly more developing at some of you revenue Okay of shortly, marketing of when curious NVDIMM also just

Chuck Hong

the have We Supercomputing for with partners some announcements some at NV will show.

active. sampling world are customers is the the product. around There dozen qualifying We two very are that

start I think that the drive takes to in hold as the market Skylake demand. will NVX

Richard Shannon

is helpful. That Okay.

the little licensing move side bit. to Let's more over of

are conversations of those doing in Samsung timing Chuck. if kind conversations a I recently, talk about what prospects your help of wonder follow-on and potential the can your us describe little you went bit a how initial Let's JDLA? HybriDIMM

Chuck Hong

the product good as always would of prove once agreement signed you making commercializing the part there and know get we was to move are the We you intention X a with that to, product JDLA progress functionality point Samsung. the to we phase that on is a

on part commercializing product negotiations there a making are X, We that offering. in think of is middle business putting of phase I the high their of the the from of level the Samsung interest terms technology and but it, in

some take negotiations. to That's business it's yes, where So going we are.

Richard Shannon

more of Okay here. I queue will and others out for helpful. question ask that's one jump the

there are possibility odds those you it expected here, just on have quickly early hynix to business from on settling on settlement can Just history ITC put the or a before initial occur within here. or determination of see Hynix Is still have to case weeks been the of seems announced. two going that anyway a Are Chuck? do potential, discussions there? you obviously

Chuck Hong

– is expect negotiations as in script ongoing as like Yes, channels we And the you on that can open. you the would there I a mean that case this. are stated

of but hynix lot they is is infringed worth being the the there we that’s a can wire, So expectations have our about talk that value what down expectations their well. and of by as patent happen the have portfolio and

those in expectations. matter it's So gap the a of closing

probabilities settlement this we continue a put think I to the yes of talk. So determination, and I initial a there but the what is number to on prior chance don't can

Richard Shannon

fair. That's Okay.

I the from all that's think me. questions

jump So thanks of look to November out I appreciate we I guys. will But XX. line. will forward at and Thanks.

Chuck Hong

Richard. Thanks

Operator

next Gary The comes question with Please Mobley go ahead. Benchmark Company. The from

Gary Mobley

Hey XX November determination. the initial question. for a taking Thanks I guys. question about had the

is a and claims So on one SK three the whether of legal And a the question how apart. right would three hynix industry that over hynix far or to that already Is are my per those on five check consider are far public on claims it's hynix get Richard's it to leverage victory to just a we that settlement all understanding patent onetime helpful? make do would a a hump? key color so filings and of monetary want point settlement checked it to but you value offer they it issue, and have issue, be compel an has follow-on applicability guys you as perpetual boxes issue, just and an it SK you all five to is on with got essentially a terms any guys SK apart made commercial, of if boxes you really be domestic licensing of obviously

Chuck Hong

here Noel certainly we And of question. he can will is address there. go first so Gary, part then from your I the think

Noel Whitley

Gary a know you those those absolutely plan judge issues Hey Whitley. you ITC's Certainly Yes. check result Even its the domestic recommending ITC public to one that order validity interest Noel would that as we the would the specific and boxes then and of if boxes be victory. infringement an checks said in as exclusion industry issued. that is

think would a would provide I certainly yes, believe we that significant and we that momentum. also victory settlement So consider

Gary Mobley

Gail Okay. And I go ahead. am sorry,

Chuck Hong

remarks, unable Yes know we scripted half to, I of out numbers forward as have question sales about of are multi-billions anything talks negotiated your of profit RDIMMs of I number we that. patents. the in being our that unabated that about are as it financial I the the we that LRDIMMs they’re well the think last second that as over and talk put don't after are multi-billion dollars to results Gary, all think publicly indicated by of generated as dollar and believe going an quarter that same of we year the recording was covered quarter of But

the the should of indicate of being the discussed. magnitude are well what size that that So appropriate as settlement the of is dollars infringement the dollar generating they

Gary Mobley

grow on saturation related if mistaken and what not I shortfall and curious okay. the it the your revenue obviously call mentioned Understood, am I you to sequentially major If last it total factor am that didn't is contributing would in and to was just earnings customer to so the Does lack or Drives one amount as tight are it's you to two base State customers? extraordinary you that mentioned. shipping an diversification NandFlash if or of supply of to where the specific point or relating Solid

Gail Sasaki

is that I will that last first. question answer to The answer no.

We widely has that selling prepared become of and mention strong in SSD building that the base more the very have and year. were I last diverse quite bit the and been type market a over remarks to a we customer particular a of available did

this we and have is DRAM know call to have And volume selling, to of being grade build However, making types we large that you customers also requesting specialty able by sales. in of have we as it more for and because different up DIMMs several SSDs a raw enterprise many sales synergistic do Samsung an been there for our from been the materials seeing are EVX. access that in we increase what

Gary Mobley

Got you.

have. Thank all Okay. the That's I I questions appreciate answers. you. the

Chuck Hong

Gary. Thanks

Operator

question Desilva last from The comes with Capital. ahead. Please Suji Roth go

Suji Desilva

is down program? X,XXX the those comment the or have getting on mentioned the on hi Chuck, the you some the that customers of specifically Hi what into we could more comment maybe talk, Can -- here. qualifying general that timeframe congrats on you convert and cash burn the HybriDIMM customers on Gail products

Chuck Hong

NV. were That was those Suji, – hey to in regards

Suji Desilva

Okay. That's I to three, helpful. couples, said HybriDIMM the just Do it there? to folks. Is two is is or Samsung number understand beyond for is it comparable of you it in know have hands, you breadth it several talking opportunity the handful

Chuck Hong

about and it into taking players HybriDIMM then creating products the we of an the controller evaluation be And making dozen controller it's customers there and around would version [ASIC] potential Well, and of this And is controller large to are to would DAM. then and we the a FPJ very most evaluated, a partners the a technology half be, and that conversations selling have those talking world. ASIC by technical DAM today. putting

players. and out will don't but worth know these it interest have exclusive major non-exclusive, or is the it So arrangement whether big we are that be we an players from there significant

Suji Desilva

available partners arrangement, licensing to the arrangement that’s product opposed that be technology –? these controller to through made here a as is follow-up a Just would Chuck

Chuck Hong

that the the We the own we on would the have things technology, be, would would correct. would be technology the Yes consult codes shared. until Yes it yes all transfer controller, the RTL all of partners. we to these we software these driver, it's know-how that's would architecture, the ill but

Suji Desilva

second and trying with two between hynix that two interplays the effort, paths go just authority can the really from inter-related? how or dynamics Okay yesterday, announcement ITC not get then to they separate understand just settlement would the you ITC in talk to a about they that and the the first really inflating on effort

Suji Desilva

Suji. handle Well one that Noel will that

Noel Whitley

are are patents They patents actions different the they but is Yes, similar. are action are patents obviously nearly first related the related, Suji. the Hi obviously are not. The big.

decision a couple expect of We in a weeks.

a The action along did don't, as because perspective faster first it's from case a second we but will and run second interplay a between similar legal likely timeframe expect much don't we first the actions. the the a little smaller

Suji Desilva

in is last then and just you like question out that of like of there? DU people help as for them terms the things solve of looking that architectures here, you a key are from you what kind trends toward kind Thanks. are of describe of comes customers conference to seeing density customers Okay there to Supercomputing looking try is the seeing, the ahead bottlenecks other and are gravitate are kind

Chuck Hong

Yes.

because prohibitively high high. large lot density memory of So going the I it DRAM density, high But the through been of of prices at datacenters the a there is part capacity, in server high of overall skill server for hyper think, become server growth the modules about the expense has has the customers the memory exorbitant was demand. striving is written roof,

part memory class the storage with module role comes as of of modules really do lead some the DRAM adaption Intel of and and server overtime And there. memory you into they solution, class stated play modules a memory. are high also, think they lies more creating capabilities into think NV. base of class XD NVDIMMs point the that cost. I the shift think capacities similar market next value performance they cross are density memory of storage will if I and there their a the at storage would That densities, I because capacity from high got displacement fraction come of where be in and to have DRAM that's a year to So to

memory think half memory storage I is, in So, the class year and to server content NV. historical last the for opportunity levels a with and well it getting bodes

Suji Desilva

Thanks Great. Chuck. for color the

Operator

today’s and This you presentation, concludes you conference. attending may Thank our session question-and-answer the disconnect. now for

Netlist (NLST) 1 Nov 172017 Q3 Earnings call transcript