NLST - Earnings call transcript Q3 2020

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Operator

Good day, and welcome to the Netlist Incorporated Third Quarter 2020 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded. to Plunkett conference Group. like Smargiassi to now The with would turn over the Mike I Please ahead, go sir.

Mike Smargiassi

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

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

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

Chuck Hong

Thanks, year. nine Mike, financial compared the for doubled first third revenue to quarter, the performance of ago XX% compared hello, delivered prior the once our again to we grew we more the solid nearly the and than everyone. year year period. months Revenue and In

the We in reduction SSDs. XX% in as profitability, gross half to operating for solid enterprise also gains XXXX, resulting continue net demand of from in a a the In see we profit loss. managed delivered first improvement we in environment quarter expenses, and benefited closely third

from ASPs the we has supply pressure XXXX customers there's data as the from half healthy, of multiple seen fourth as of on a And in demand some and result, increases into enterprise the been vendors. moved quarter. remained While center enterprise SSDs second

our SSDs continue customer believe across our on believe outlook In the and storage product high end XXXX base for the segments performance to enterprise move SSD line numerous markets as strong we expanded expanding We we remains for as are robust that we the is as strengthening into positioned of need the long-term We we into well portfolio. focus Netlist’s shipment targeted September, the performance SSDs. NVMe next to customers NAND of exceptional key military The management, centers provide as high first performance cost SSDs. new current security XX of markets. encryption data layer to highest addition provides a benefits and level the provide layer the and Opal drives mainstream TCG compared end government with production generation for as well XX These NAND agency feature, of economy.

and pleased we new a are kicked which response we qualification SSDs up by started customers been with partnership year at Supercomputing Netlist’s set distribution partnership week. these are opens October in announced showcasing earlier initial end. also The the the from off Digi-Key for by leaders, this channel have industry wrap We year In this XXXX, virtually to products.

trusted the resource and we supplier significantly for across reach design As engineers Digi-Key a products the visibility global and offer. of industries expands

of product efforts knowledge streams and embedded DIMM revenue will out new the line. Sales; strengthen third the the leadership President steps industrial space. appointments of of deep create in to memory and to in as Sinclair Tinh Together, Marketing. as marketing Both the and Finally, particularly Cameron Ngo the base and extensive Flash the President lead with executives industry to sales we of Vice they the quarter, customer bring took relationships company's build business, Vice our and expand

U.S. patents, Texas, Western has to our move is of while scheduled portfolio Court a the ‘XXX on which with three now new ‘XXX for and continue self-test in the now move ‘XXX the ‘actions, final the to Federal a the been hearing ‘XXX to In on track. and XXXX to will next seminal the cases. Turning patents patent is case expires that the combine in Trial action appeal which hynix’s all is will faster involving decision the the set forward. trial which earlier of to a in RDIMM scheduled The action, the the patent. by has U.S. of Board's affirmed ‘XXX patent. the families single for court case and challenge that made property. year, Markman in ‘XXX date XX. against judge Google infringement the the the defend District hynix LRDIMMs Patent existing There patent, value Appeal and actions of was the Monday, be our District Court for November March The the in are for to trial Netlist’s and patent legal The IP continuations two proceedings The we the intellectual originally of this we the December October, net In read window SK for Circuit decision fundamental as result last the XXXX. consolidation Supreme asserting U.S. decision consolidated call, small a to be noted XXX schedule in a validating

reexamination take is and patent point, Google once will to pending infringement District case we move of believe to the of the be state ‘XXX we resume lifted We by certificate patent At continue issue U.S. be appeal, which request under months. certificate, in for case Supreme is the not to the the trial reexamination the Northern file of U.S. does few the that accepted against will claims process PTO the believe Court assuming the for a a in Google unlikely this to an Court. the California. will to issued, immediately District a appeal And

explore to consumer applicability of to we Google believe our we the modules, largest ‘XXX is patent of manufacturer memory As to continue the of the Google's and addition the in of rest one activities patent. portfolio

now Gail financial enforcement Gail? the building in well discussions the for continuing I'll turn as engage over implementers, options aggressively patent actions. with to are portfolio We our our review. while out to as call review additional for

Gail Sasaki

third increase million September were in $XX.X ended ago for million XXXX XX, Chuck. to XX%. the quarter Thanks of of revenues compared period, $X.X the year Revenues an

$XX.X months year. year the mainly SSD for to contribution quarter-over-quarter SSD million, cumulatively improvement significant improvement nine the manufacturing reached costs NVMe is and ‘XX. a by first to the in increased growth XXX% primarily the The an revenue QX costs, from of gross XX.X% percentage, profit improvement period were product driven for first XX.X% to revenue, quarter compared due of was percentage in including months for top-line our have A to year. Netlist’s last from compared the current manufacturing For the last SSDs. which increase of last of gross in same ‘XX an QX margins before year's was XXX% XX.X% the margin increase we net X.X% and gross the After products the sale of quarter. nine increased

and cash million, restricted $X quarter. second selling the fourth indicate within quarter of burn given commentary of compared revenue on anticipate the using to on soft to in discussed current near-term the But well approximately downward similar backlog based credit. current average mix at R&D, the continued Although approximately the million range, cash with We to equivalents execute third target current we cash lack raised million. million which the as in we to cash continue industry us the Cash as third activity. We bookings substantial the end of $XX.X equity to-date, causing of quarter with was and QX don't we’ve of supply, and visibility through us million, and intellectual $X $X.X on of allowing a guide, last during line the well pressure our to prices a and our continues balance quarter. $XX.X end $X.X pace quarter ended be strategic to The of year. runway, invest provides portfolio property to to million

choose equity $XX.X We another have years. not to the for on credit million approximately use and of expire which two half line does we it, remaining a if

increase In sales continue gross for very a carefully day by ‘XX addition, days the inventory in and operational offset turns by an included QX This increased in manage we we consecutively. as cycle, outstanding cash XX% payable. decreased was inventory to decrease which

line revenue working to continue also million of maintain with $X Valley We and working support capital Bank credit to growth. capital a Silicon

Technologies Finally, event contact one-on-one will questions. like XX. are look to forward if in with ROTH you your we be your now and Virtual we Please ROTH would this Conference connecting Thursday, Operator, November representative participating you. to we will join for ready us

Operator

you. Thank

Please We will the Shannon question now begin our [Operator ahead. will And go from Instructions]. first come Craig-Hallum. with question-and-answer Richard session.

Richard Shannon

Thanks or on questions Chuck outlook a quarter. of for here the fourth my taking thoughts couple just guess Gail. and I in questions. the Hi,

or between the is your revenues mix You're be to kind in quarter. of products roughly a other direction? of similar SSDs similar in for split change NVMe and either new sales the Is to there looking third

Gail Sasaki

similar. roughly It be will

Richard Shannon

similar, this mean downward And thoughts and the mentioned does some pricing for on you Chuck quarter into that? What then see where margins kind your okay. them fourth about going Roughly gross of beyond going you’d greater SSDs. pressure

Chuck Hong

first on a Yes, percentage flat half X%, are of that -- profit, a bottom this for anywhere out products the in impact -- and at declines the next we're this the will only. through range at year. of relatively in of the half the it looking first the few general then remain gross to end projections year flat SSD into to in the the Richard, of I are The half X% think ASP year. teens to from second And from points

revenues overall product be impacted gross -- profit for significantly. think -- overall don't won't the the So, sales,

Richard Shannon

us a speaking? either today, revenue is or remind And SSD us just of stream your terms or can how in NVMe big you give dollars sense roughly percentage

Gail Sasaki

Richard, I'll that. take

XX% it's nine So, the months, revenue. for about our of roughly been

Richard Shannon

this about with a customer of interest? think of you Chuck Can seeing you've the you're talk and with to customers you're seeing think I you so progress your talked far think bit the remarks, prepared supporting And about two product. talked qualifications broaden storage there little M.X new hopefully desiring product in some last was SSDs. about line OEMs where larger about some to Can talk even related your quarter and base? quarter, base about customer interest I you your it where I kind broadly last some there’s had broadening Okay.

Chuck Hong

company that a the appliance storage qualified industrial at due was space Yes, products doors makes That dash police to up getting M.X equipment. in cams are a of Recently, M.X. even and and opened example. space, car for I security lot think some the

embedded to the in new most we're and the as the industrial are customer storage of that applications So see, qualifications space, space. as well starting appliance

that's majors have on, anchor And remained demand the then consistent they customers two ongoing. revenue be the that stream working in stable. and we're major from their the to So two continue

Richard Shannon

with on major that type add of customers so? the or server to any either is ability or cloud in couple quarters Any going customers? If of Okay. qualification next

Chuck Hong

as targeting obviously calls, And on We're past Tier discussions having of X the vendors. today. cloud we're some we mentioned those

point. embedded the is I discussions. industrial to this good and the with think into more space the But those major OEMs. contacts got And we've we progress have the continue at

Richard Shannon

Google, didn't of miss about you And I of expectations my we line. the I timeframes anything last what courts should think any the indication comments. any in question, in jump hope the District But to timeframe of Related from if kind general the I'll resumption Northern there? of or have expect California? indirect on prepared Do -- for trial to the your

Chuck Hong

valid the the the which claims exhausted, have the patent. District the timeline the think Once in the the are Office, resume court is request then case. appeal ‘XXX we will California immediately to the know done, of Patent and for appeals I of Northern and the reissue once you claims, we'll that on-stay Yes,

lot will of on on that this what's casing of made case the progress depend state. a their docket. some prior Now, on to We've

know, it's QX, estimating case sometime to but hard the So, QX to we late in are for resume. early

Richard Shannon

having having when something resume, actually and related events? hearings say you to And other case mean you or Okay. scheduled

Chuck Hong

probably, same responses. you'll scheduled and When a it Richard, put docket, case that's conference, briefs to Well, have case and a on the initial gets management thing. then the gets have you'll

scheduled at yes, entire case the docket, entire point. the case the put that -- is it's So once onto so

Operator

come Suji go ROTH next from Please ahead. Our Desilva will question Capital. with

Suji Desilva

Gail. Chuck. Hi, Hi,

versus center supply in the data of on digestion demand is cross doing you inventory demand, SSD equation? kind reference or to they maybe how recovery in would you could So, what's characterize and that end NAND kind of the demand cycle, where markets, are the

Chuck Hong

second in a lack of the quite data From acquired and the that inventory early many bit by inventory, indications the with on of pandemic Suji. all they've the was of digestion overbooked of the the Yes, in year, half. visibility of and because centers the economy of accumulated

And SSDs. see. been has So, But, has from what in that the of we from there dwindled major beginning output vendors they're been still multiple to stockpile order again. increases

So, that's the demand will starting supply but And as the we is normalize -- high. end believe there. QX, start on shelves the things The remain supplies to and back, but to subside going demand is coming into through, -- start work next to quite of led of year. the vendors the the that declines year, ASP will

Suji Desilva

left certificate examination anything for that the that just that certificate? that prior needs question appeals happen is the you else question. the -- prior thing And -- I the Google herein follow to is there litigation. discussed a question the up in is the on only to now the to or that fail, happen issuing the issuing But between reissuing -- the of timeframe -- for understand

Chuck Hong

an If not kick in Patent reissue at of patent, point that usable the valid nothing is the to making claims again valid really that administrative year there the then will no, appeal, need point, at process. in case. It's the to does that happen. wholly the Google patent Office Now, this substantive and

Suji Desilva

question question opportunity. and on last picture hybrid bigger memory And any bigger other maybe SSDs

drive can shift going a I forward curious hires know the base? the different help you solid versus perhaps the the what growth with customer new approach, management, in that maybe the about subtly With pretty just any. past might interaction brought you’ve approach there, team, if how that talked in can

Chuck Hong

Yes.

and have the last the of industry. the indicated that in module remarks, we executives quarter, Flash in As memory both were prepared embedded the experience two hired decades

all that we really them are that applications, utilized the industrial a to SSD, embedded products, of these USB, lot -- of of being hired space, SSD which different are applications. of and a all comprises the X.X networking, types SSDs lot these So grow ubiquitously inch, of in business M.X which of specifically smaller telecom, across CFast, slimSATA applications, are using

of area their that's So, expertise.

few new embedded Flash So, coming months, industrial products, open we've at with and embarked and on already space. them started to board, this these have on the of opportunities all in in last up designs and customers DIMM

particular So, expertise. that's their

So, types that of Tier X, many SSDs. and smaller of more are that those SSDs, with the more different from form a types SSD, higher the terabyte cloud enterprise qualification, bit That's terabyte, more XX of -- X -- the the factors capacity, much datacenter better much SSD. is Whereas XX or capacity space design-intensive applications.

Suji Desilva

would an Chuck in Call realm? it opportunity there, this automotive be

Chuck Hong

Yes.

Operator

as as well Thank conference for This you presentation. today. our concludes session, our today's question-and-answer call attending

now You may disconnect.

Netlist (NLST) 10 Nov 202020 Q3 Earnings call transcript