NLST - Earnings call transcript Q1 2019

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Operator

Good day, everyone and welcome to the Netlist First Quarter 2019 Earnings Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] And please note that today’s event is being recorded. And I would now like to turn the conference over to Mike Smargiassi of Investor Relations. Please go ahead.

Mike Smargiassi

good and William you, afternoon everyone. Thank Netlist’s to first 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 the replay As of call website can the and

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

Chuck Hong

good afternoon Thanks, everyone. Mike and

performance product First impact and in stage. are to of process. loss to to partially results positive We a base includes completed sequential of on traditional reflect last more demand cost quarter. of quarter SSDs management, XX compared than more and our of have of XX in now year-over-year a qualifications compensated introduced sampling, customers. ongoing which stabilizes half basis from financial reception the The are both which prequalification net for storage remaining decreased related have top enterprise shipment initiatives, continues and widely server market customers have and pricing The erosion evaluation server the the line worldwide the and our to second In line regards decline for been XXXX. weakness NVMe we to receive reported is that DRAM has in from the enterprise the strong as short-term negative pricing that demand impact DRAM the server XX

and introduce X them additional to planning also recent on SKUs others customers, with discussions headway the X X from and engaged. and add qualified some with offering OEMs Tier to making feedback are Based SSD are We sets provide The expansion of continue to next solution we of to will this generation of market we the allow later ranges. the with offering to bring features products us a broaden full and based XX-layer product capacity us and suite year. NAND

of the are for production over ASIC the progress engage remain and on The also path the couple JEDEC the activities we efforts expected ecosystem as With next well at of continue the and quarter, in with specifications progressing HybriDIMM coming for potential on HybriDIMM we commercialization remain balloting in months. quarters. forefront standardization partners, orders to various

utilize the scheduled favor their investigation the trial against the court has motion to SK of products to of as would Chief initial will Judge and Law temporarily but attempted was was Hynix suspended the and determination stay by to filing has RDIMM include that granted an a denied as resumption was to after licensing the both also investigation. our order the matter. and by Chief elevated should motion hearing unexpected This been the by Administrative whether Hynix October importation United an of related States. for been Netlist’s reset into prosecution to The which ALJ recommendation day started July on March exclusion XX, at a LRDIMM the of SK XX. which United for area litigation the partial due XXXX scheduled, to XX in activity bar testimony Hynix’s the the intellectual and property defense. discussions key to initiatives, now patent terms Commission trial of second remained International States level unrelated Trade licensing of this totally a suspension Turning in year be

the the two specific are refined Hynix’s call, last LRDIMMs. that view the claims and XXX contain in Hynix’s XXX have noted patents the infringement Both RDIMMs patent of patents As against or the order Markman received this the asserted framework against ITC in first And been the by and the from ITC. indicates on entrenched decide which favorable shortcomings the case. Hynix. a are provides a at claim will Both if construction patents ultimately valid patents

Courts to expect this later approximately we in an of appeal with XX recently first for Munich filed non-infringement Germany, to we the activity, Netlist’s Another hearing hearing a estimated And the occur in the of year. ITC District appeal occur months. ruling case

appeal in the of in at Finally, the PTAB, to or favor to Circuit the Netlist’s PTAB’s Appeal Board, filed Federal the for decision and XXX Google regard U.S. notices the patent. Trial Patent final

ultimately to PTAB affirm months. arguments was couple over We completed next process, but to the XXX the the Netlist’s which hear this favor. Federal regards at PTAB’s expect to of our was PTAB, be an March again the Circuit to XX-month In the we all ruling expect from in and decision, expect in

Gail patent, XXX of the I call and are review. have the scheduling we PTAB’s over On financial arguments. the the the turn for to appealed awaiting oral now will decisions

Gail Sasaki

XX, Thanks, compared revenues million period. for $X.X to were first Chuck. the of Revenues million for XXXX quarter XXXX ended March the $X.X

server erosion. As top related decrease noted DRAM line the shipment earlier, was pricing to in decline worldwide directly the and

gross This and the $XXX,XXX which of After costs, acquisition at gross due for the modest the mainly product consecutively. for quarter our decreases quarter retail during and additional a quarters during were period guide before XX.X% although margins the first year-to-year the X.X% we XX% bookings Legal first First the XXXX for just-in-time $X be the from to current million the XXXX ago week, percentage margin Operating to profit and first to net quarter. to compared compared quarter, $XX.X product the $XXX,XXX declined remaining of for percentage net million, margin manufacturing first were to the $X.X the and first current at inventory burn of quarter is of the XX% increase manufacturing was products X.X%. year-over-year million to million cash expenses first $XX.X pace X the year. cash quarter and quarter. of revenue a of which We we And quarter cost down gross is our second compared in million cash pay quarter. don’t XXXX anticipate expenses. legal last cash quarter was expect the year’s at the increase end was down ended and quarter. fourth during $X.X XXXX for given X.X% the of the comparable we last This year expenses with to equivalents restricted

$X includes revenue credit with of to Valley capital receivable for a access manage of We line support overall Bank, now million we the proactively working XX% cycle, continue cash Operator, provides are questions. working to borrowing and growth. Silicon ready accounts which to capital of which to up

Operator

Thank Please you. Capital. [Operator go And with Instructions] ROTH questioner today’s first be Suji ahead. will Desilva

Suji Desilva

Hi, Gail. Hi, Chuck.

first. that of the per financials OpEx, down year-over-year, couple sustainable? also on questions R&D maybe fees So typically around level quarter, the that X.X The is the is on litigation sustainable

Gail Sasaki

The go see of from some we expect to legal we fees definitely, decreases through year. rest QX the the as

Suji Desilva

Okay.

Gail Sasaki

get entered completed on right with the specific our have think HybriDIMM R&D, past work. that as this we we yes, hopefully for rehire closed we partner mentioned are commercialization we skillsets, and to that And, the for start first. first of phase, may the and but in working now we phase I And as waiting

Suji Desilva

unit sounds volumes as SSD, it of sampling then a Chuck online, have that’s kind quarters what going, potential come what these are be about on the Okay, of the or several up? customers And you as some activity helpful. thinking it might volumes in of like next Gail, lot ramps the here XX to

Chuck Hong

Suji, in we in I quarter. run-rate get volumes million the of qualified second SSD But half depends which can revenues think to ramp of customers a think customers their storage a per on their of we systems. it of the few the dollars up

Suji Desilva

to you just will you. you through great. versus this kind July the but around. took litigation you very XXX all And us That’s more on you could Chuck Thank optimistic litigation, I go That reasons be wrap optimistic make things list more XXX of the the up you time? the past and helpful. around them, you Hynix here, just that Okay, are know refined helpful. the this if remind the time kind of come then just can all lastly

Chuck Hong

this to we the targeted the Suji, being case ITC resolved that issues. infirmities infringement were more had patents are case. in were that some asserted second and It the the children Yes. first and validity patents refined that of in

good that. very feel we So, about

children quality claim I by our Markman was patent or patents – by validated constructions judge think generation was case, new favor. on where to given second the he were the second in this ruled that the these ruling of ITC validated the mostly that the

Suji Desilva

Okay. Thanks, guys.

Gail Sasaki

Suji. Thanks,

Operator

ahead. go questioner next with Richard will be Please today our Craig-Hallum. Shannon And

Richard Shannon

thoughts thanks for quarter, the my a would on maybe Well, question on gross Chuck second that in assume sales similar, down. to watch Netlist Gail Maybe up said on Gail, think and you I questions. the little margins are Is maybe a products, that taking ask that? directionally grow Samsung SSDs flat maybe the perhaps a that including assumption growing be bit, your to products fair perhaps branded based might branded the the

Gail Sasaki

will probably I up to and SSD Netlist be some products contribution resell flat that also would line. the the we from will say see

Richard Shannon

contribution, Netlist would the maybe I is million, are $X million well SSDs talking less $X for than fair? Okay. less assume we about that than that

Chuck Hong

fair. probably That’s

are we in for nicely in was to the expect quarter obviously headed server the XX% second resale decline huge and half, We ASPs something SSDs but order as a Samsung this noted ramp as in worldwide for as memory quarter-to-quarter XX% probably where decline. low the it for that’s QX there we to the

a things of four a the think historically was I QX, are softer bit. quarters. stabilizing it

down. in decline think QX up has I has slowed in and the general So nicely price picked demand

good think I through half this first So are we what thus the quarter. seeing of far traction

Richard Shannon

of Chuck, I advantages category? of Chuck you some differentiation maybe some the are like questions like more on at getting a for this SSDs that Maybe of good are here, looks I here. primarily me. how you are sounds in think those can kind your traction us breads that’s advantages on remind Okay, what based in good you if or helpful. It from maybe and couple TAM big performance re-declare time that products point could they guess

Chuck Hong

a speed today. got NVMe That’s category. And higher we some to the Yes, products, offering advantage, major compared IOPS performance of have category. suppliers SSD as within advantage storage have full price the That’s focus. as we our end advantage, in Richard. measured incumbent a Again, the our

end important tend higher to So, customers of that be many and that’s the looking for high-performance. our

niche the able move is in a also of We the bigger guys. to large half particular category And height life billion that one thoroughly and factor. factor AIC believe at guys of major half is annual $X this out, length That some called or a are be of within is this with going end market. to NVMe niche primary moving quicker form our space NVMe than we form a

And with advantage very the are last over are think that in in in advantage performance in the a the have we segment the market, of NVMe that we some we X months ramp competitors revenues forward position focused good calls half. to market. departing based the secured I our So take that up we of to the on look and have second these and of

Richard Shannon

Okay, that’s to HybriDIMM, the and And future then your can progress Chuck a what’s of the for partner here, terms want let’s helpful view of about I you we looking rest see acquiring ask readouts. year? for here the expect in of NAC announcing in do what Chuck

Chuck Hong

candidate a those couple we discussions due technical are we more are a in we They I and and both business close Asia to recently model We made are one and out with – parties. partners right with some there now diligence trip out of recently are candidates, and of in actively working those partnerships. doing or

Richard Shannon

or Does Okay. of regarding where or the depend need that taken be – be standardization on kind obstacles to that what’s steps is you completed? closing think anything JEDEC the the will

Chuck Hong

product in just controller and also overall the Yes, standardizing controller the standardization about protocol for the JEDEC multiple as NVDIMM-H. of suppliers and lighter is this as everything well done with will that stage parallel DIMM the being adoption set the

will of that – product. the are committee partner, that through that players, secure also JEDEC we with, ASIC it but we the and working us of So working on members to because group standardized in through help are couple dozen wider stage for will that we the set have with

Richard Shannon

for last cash One if could what the relatively you for second an excellent. the absolute happened expecting you of give us number to sense a in maybe Okay, what not if first are question quarter? Gail, burn in quarter,

Gail Sasaki

be – X but to we than that how won’t did be make. payments of we will X I then $X think less and then million this in be operating it of on cash the burn that. It be dependent again the range and the it’s something will will legal much rest quarter,

Richard Shannon

for me. you. Okay, perfect. questions That’s Thank all the

Gail Sasaki

Okay. Richard. Thanks,

Operator

conclude will session today’s this as And answer the call. conference as question well and

you presentation to want and lines. attending may all you Just now your thank for today’s disconnect

Netlist (NLST) 14 May 192019 Q1 Earnings call transcript