NLST - Earnings call transcript Q2 2019

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Operator

Hello, and welcome to the Netlist Second Quarter 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note, this event is being recorded.

I’d now like to turn the conference over to your host today, Mike Smargiassi. Please go ahead, sir.

Mike Smargiassi

good and Keith, you, afternoon, everyone. Thank Netlist to second 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

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 assumes and note current statements materially which expectations. to Netlist on we could in in Before are cautionary call, Netlist projected release presentation the expressed results questions forward-looking obligation annual that the forward-looking the results the those statements, and

the I over call to would Chuck. to like now turn

Chuck Hong

showed the basis to areas Thanks, revenue and Mike, in progress stabilize. and key margins on good the afternoon, second pricing started quarter, summarize server DRAM To improvement a in everyone. gross and sequential

We in International of we finally Trade And United against the at the progress trial Commission. also HybriDIMM. completed SK States commercialization hynix made substantial the

in conditions this and product remainder the regards the In be through improved quarter to expect maintained these memory Analysts year. has the margins. of second market sales, SSDs and starting helped to with demand the and for both market conditions

both products the We also well SSD for for broaden Netlist products. base to our continued customer the as as distribution

in In we for large OEM one the product QX in We in Tier customers OEM from SSDs, of believe earlier Our customers near and year. have a at qualifications the we’re we POS to bode remain term, these currently the of major future at this see SSD second the enterprise testing X hyperscale world. production path completed at qualifications biggest a efforts NVMe completed with and well the on line.

XX X range enterprise terabyte SSDs line, of terabyte with Dip] product to features [Audio and expanded Our includes capacities. full

later track addition, we on In are product to a XX-layer this year. NAND-based introduce

HybriDIMM multiple made progress to the commercialization, quarter over on Turning significant we past fronts.

first engagement HybriDIMM Understanding with The of chipset the Controller conversion The Memorandum is a of for terms agreement make a IP, major Controller company. to as HybriDIMM the forth module. the based sell of sets into basic an Media and and the signing item the semiconductor Netlist Media on for ASIC as well ASIC partner memory of the

third parties path chipset broader is the us global it mass This market leveraging to the of property of is Netlist a This adoption bring of ASIC development for implementation resources campaign the a very as brings solution to to company as as HybriDIMM well ecosystem which create exciting drive part will a market. an semiconductor HybriDIMM. a for intellectual create drive the of to

coming MOU the goal and definitive diligence work the a due month, Over agreement. with a partner of Netlist will technical closely on reaching

suppliers. to healthy swath ecosystem including IP standard vendors effort, users HybriDIMM and Netlist is a representation and leading The JEDEC. industry. industry, contributing NVDIMM-H of other and industry CPU controller goal which With is for much is the currently standardization the through suppliers. a that develop effort broad chairing memory of standards and being done storage memory the of the includes and the body and commercialize HybriDIMM Netlist The from to is the NVDIMM-H work customers, industry of part make and semiconductor committee, an

infringement be to Trade SK briefs lasted domestic the at July, due Now turning and Commission presence evidence validity concluded U.S. in and respective to legal SK and presenting hynix witnesses with brief coming Netlist trial their as as International industry the The update. well the and four opening we have days hynix. will filed interest. second through patents against the of both post-hearing Netlist’s of a Netlist’s relating weeks. public reply In and trial parties

the initial be validity States. and Chief October into whether determination patents United investigation to Administrative RDIMM exclusion a and granted, the recommendation The Law should asserted of of importation bar SK as a by is infringement issued the which expected of determination to of by and LRDIMM be will XX, include that would the hynix’s order XXXX, products the Judge an

asserted we action. patents, a positive As ITC first the validity in hope on hynix, in to not to and be however, something against that SK interest. infringement find as The did public second this received we ALJ, successful domestic reminder, action the industry and is determinations of

Trial On after June to patent it’s the And U.S. written the decision, March. rule the in oral PTAB its XX invalidated. decision not written final issued XXXX, PTAB final the regards claims and or ‘XXX that arguments the Patent XX, XX and Board Appeal were in

is remaining have positions forward claims in is were federal appeal look hearings notice patent, respect circuit. remain rule appealed August. and the With end decision appeal plan PTAB XXXX. challenge ‘XXX the this due our the and to our the confident to at our However, we of unpatentable. opening brief PTAB’s the decision and We September, of We appeal the the due to at

financial turn review. now the over Gail I’ll call to the for

Gail Sasaki

directly erosion The million $X.X XX, line for decrease pricing $X.X Thanks, million period. year quarter. June the and top to second shipment worldwide for Chuck. versus Revenues the to XXXX the XXXX, were compared server ago decline related DRAM was in the of quarter revenues ended

beginning year. line since we quarter top of As to improvement see pricing DRAM sequential modest as we on a basis server expected, stabilize SSD and the started did the has

continued Second was revenue our to gross we last the aspects percentage. before margin improvement gross costs, is And quarter. product of increase were for XXXX. anticipate quarter modest cost percentage although for net XX.X% percentage, third X.X% don’t second the X.X% quarter do just-in-time quarter current manufacturing quarter the given mainly manufacturing is and pace This X.X% the gross to margin for guide, acquisition margins current After we due year-over-year product in which most XXXX business. for compared inventory profit year’s product of bookings, and

and down by ago the XX%, XX% for and in during year-to-year year. decreases Operating legal of Legal second the expenses period year and were additional declined consecutively $X.X the half second we expenses from expect million quarter X% the respectively.

costs. and $X net the at cash and quarter compared of with of ended the out million $X.X million with burn million We cash for end restricted cash the a of $XX.X equivalents $X.X first million quarter, paid litigation to cash

days, We continue capital of to cash days included which and in overall working cycle, the days, consecutively, improvements manage proactively year-over-year. XX of nine

with Bank, providing have XX% access Valley eligible borrowing million we continued working $X addition, of up accounts to working and of a ongoing growth. to In credit to of revenue support capital receivable line Silicon capital

agreement also to year. that entered We June raised of under this the we quarter-end subsequent $X.X purchase into during approximately million

Operator, we for ready are now questions.

Operator

thank Yes, you.

comes We first with will question-and-answer now Suji ROTH And Instructions] begin Capital. question from the Desilva the session. [Operator

Suji Desilva

Congratulations on here. Hi Gail. Chuck. Hi progress

So maybe of the improving your versus that first question to are would perspective? key ago stability Chuck. three what memory from drivers in market, months The you say

Chuck Hong

Hey, Suji.

be the of stock of server memory been RDIMMs to think major of It’s I that’s starting consumers LRDIMM. some down. held and worked by the

the one that’s it part on demand So side. of

the been some major DRAMs plans to On of the is cut side, supply by suppliers. there production

and in So combine to the of out flattened through quarter things second has the have, expect the rest continue we that decline year. kind the of

Suji Desilva

progression year on for HybriDIMM a rough months as Is process several that several formal half agreement? a for will then or in long And China the diligence months just Chuck. congratulations color, or you the signed, helpful take, Is it be the it helpful? MOU timeframe well. What’s time more frame to How That’s order? – any Okay.

Chuck Hong

Yes.

a timeline expectation by the I the think is formalized put it binding into in year. We a end the place months. get is this to of several and agreement

Suji Desilva

the memory that vendor or be And exclusive arrangement clear, Okay. not? China just with to is

Chuck Hong

No. It is a nonexclusive agreement.

Suji Desilva

helpful of have How rolling would bracket on out, products, And is That’s magnitude SSD opportunity the your now. second good. XXXX. half mind? of you or what’s we XXXX as side it revenue of Okay, more half in kind that? first expectations those the the what the the then And you’re should

Chuck Hong

half at start We expect that We it’s of production. completed to of that the beginning POS. the to will the year lead the think year, we the production of first beginning qualifications

the to year orders. estimate the to $X be of up So would through the production million $X first an in million end

that next continue And through months. couple expect ramp that And we happen some to to the could potentially over next of year.

Suji Desilva

over Okay. you this XX October I appreciate litigation here, for then help versus and – switching are that round go that? your what for obviously up to can optimism the some understand set reasons clarification the to of – time just the ID. also us there. And just reframe is And milestone is next prior the

Chuck Hong

domestic interest. the industry we in We of out that the infringement mentioned the ITC Yes. public in validity, four prongs of script

the first case. believe infringement. except everything patents the case, case, children first were results refined the in second it, finding. on infringement We asserted directed we and we to patents from second the the positive received to getting that an to the On In are case

that prongs, And out pretty case. really we this about the feel out trying So infringement. missed we of what of second That is infringement. four to get good we’re achieving

Suji Desilva

in financials, coming the understand expectation quarter. burn cash last What’s the burn starts point? for Okay. at the Then the for cash to gave terms question if next for just quarters in and of few me this you down the us that

Gail Sasaki

Suji. Sure,

QX. cash balance the to the QX of same goal for is Our end with at end as

Anything incremental has been $X to over legal will paydown be a I quarter. think of our burn that organic per little expenditures. million cash some

So the quarter of as I next to we think the stay hope same around cash for balance. level couple quarters, current the

Suji Desilva

the the in read to burn that implying cash quarters. that? you way next – zero is cash few Gail, Is net the

Gail Sasaki

incremental legal Yes. payments be bills. Organic only some cash burn, the will of difference

Suji Desilva

Litigation.

guys. right. Okay, thanks great. Great, All

Gail Sasaki

Thanks.

Operator

comes you. from Thank question next with And Shannon Richard Craig-Hallum. the

Joe Flynn

for Flynn is This Richard. Joe on

on Just the SSD. one more question

Tier that X update mentioned we’re sampling. I’m just wondering And customers up, this opportunity could the your you how you have strategy confident of qualification can if wondering think on last do So like just over you open quarter. this leverage opportunity, what’s there? cloud? that just for feel you X any that Tier I with have you and the like win XX customers design additional or that just in big guys sampling currently

Chuck Hong

the will take or half that the we’ve very there integrator over And Yes, are we’ve the those over start them. continues here we the next number volumes achieved qualification that will to major is the relative cycle of hyperscale water qualifications Joe. year. first OEM able engaged grow. the yes, got shortly complete of couple to another month to Out one we’re a months. that Those obviously if But qualifications customers, of customers The significant currently one that was major to be testing qualification then two longer. That believe nine of product. – OEM with a smaller major being other system about volumes will the we

I generate X the Suji, that to as of is in the SSDs That’s revenues product. are the with and goal. customers Tier our And new other to where the with – indicated testing OEM then we’re we’re the $X Joe one from year. expecting before we’ve And million qualified two that been on. major end couple, of the the if

revenue We’re we’ll see next hoping that good streams year. from that some

Joe Flynn

license, get That’s or a I for licensee Thanks. taking signed, related – know per like right. many still you of can’t you what the probably planet Is be units helpful? think And to details or anything and MOU looking be helpful. then you All kind it to related an royalty do where in offer would you but you wondering too you’re like, needs can here? to like something we’re fee HybriDIMM upfront of just terms payment what because like into formalized, you’re like can and approach this get

Chuck Hong

Yes.

at I think that’s a look to it. good way

some structure, the access we’ve And business then structure are the to that down road the IP, And controller NRE be will controller sold royalty running the and per it of the for a detailed in unit in partner. it fact engagement AC In includes there the this model payment the IP MOU. developed. the by

technical their that and upfront of there component, a information amount Joe running well answer technical plus payment a a component of royalty So short-term, exchange capability. as significant our your question? does as is

Joe Flynn

year? on with I like DRAM guess the with kind I have I do guess of you any DRAM, quick financials. you current guys Samsung fiscal question the date, – guess just run think $X with $X for have million, like the you $X able to million million year as flat million end. SSD round rate $X million, or million be up like and line in the to you’re by going $X.X expectations $X to

Gail Sasaki

million the and that goal $X to run Joe. Hey, Yes, at kind certainly $X million is of that our rate is between year end least. a with

Joe Flynn

Okay. Thanks. me. That’s from all

Operator

both today’s question-and-answer to concludes that session, call. the Thank you for as presentation. the to you. Thank in And well as listen dialing

lines. now disconnect your may You

Netlist (NLST) 8 Aug 192019 Q2 Earnings call transcript