- Earnings call transcript Q3 2022

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Operator

Good morning, and welcome to Netlist Third Quarter 2022 Earnings Conference Call and Webcast. All participants will be in listen-only mode. [Operator Instructions]. Please note that this event is being recorded.

Now we'd like to turn the call over to Mr. from me excuse Smargiassi investor relations. Mike ahead. go Please

Mike Smargiassi

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

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

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

Chuck Hong

hello, everyone. and Mike, Thanks,

drops reduce SSD significant all efficient and plans throughout to support In reported recent announced commentary that chain. which we to resulted continue market. Despite are and largest investments of by production future results call, has and absorption need inventory drove Recent and long technologies. conditions being that large suppliers to started quarters. Recent for accumulated guidances allow this, segments for markets year. higher the have memory are products. facilities trends performance this And challenging the impact by strong, glut have the announcements The outlook favorable last more third indicated the expected of also price of need a in weeks, of cut quarter highlighted and and SSD dynamics, performance impacted excess manufacturing that business macro in have memory has supported in environment. substantially weak for stock As and a has declines term unwind. continue Many demand memory lowered the our pandemic-related has to the semiconductor remains the for consumer next as U.S. industry the trends reflects term technologies. into term new memory memory supply these highlight industry to near the Netlist's CapEx the for accumulated in advanced for long in

quarter growth We quarter, thanks SSDs. significantly XXXX from On the and with increased in product to nice ago grow large declined year the customer a branded did but see SSD our third continue basis. orders Netlist qualification sequential pipeline a product side, several business, XX% revenue on to

with Netlist's biggest we customers enhancing that And are to agreement opportunity not access. however, directly hynix. product Hynix Our target remains markets, have growth SK the which expand by to manufacturers. ability lines supply the to major is relationship this new continues our supported and

pushed added XXX most patent their and attempt order, Moving of paused days Northern on call, the Eastern we Delaware, the of party is Judge against add California denial our Texas. Under X. that I had the a District now declaratory to the following Judge's claims that Google's case. is Netlist's Google due Management suit, of the in Samsung on on the of for action Seeborg outcome to against and of the Case Conference. the as In dismissal case Samsung's November Google back for last intellectual District relief to case stayed response noted court's Netlist's to pending property, of XX of the

XXX, includes three patents, RDIMM reminder, XXX Netlist's XXX. the a As and now action this

of Netlist LRDIMM is Texas, to action where the been the management, for action Eastern District in claim patents see which that coming infringement the pending And court's sets now Netlist near of on to module court months. hearing first for In are schedule on magistrate That three against at expect the there X. power two term has actions We the assigned a Samsung. case set set is and construction, of the or on is high issue for Samsung's covering November HBM bandwidth patents. focused memory,

at District our there, expect of conference X. establish of complaint as two second they motion Even key is the to to for in a patents, patent to set milestone trial, filed appeal and important District stay of the a XXX Texas, this transfer light Judge the XX. patents in and In judgment determining second for Northern Netlist definition matter Central infringement We case other clear of District family. Gilstrap same California's November the scheduling at three hearing action, case Netlist's on is Ninth patent Circuit the consolidated patent patents adverse recently action the in Samsung resulting responding Eastern on second of to with of EDGX set contract to case, the the Samsung's baseline Samsung May the would of and action the be only in the received the XXX for micron an California. Chief XXX of and the of claims the in this issue for Samsung Samsung's the infringement which before breach

through expect sometime a joint cases early trial to the schedule We receive XXXX. consolidated in

hopeful of Given in XXX to Judge the to the this case Micron. to Gilstrap deny State request This transfer leads District recent activity, Northern patent we us Samsung's the California. will that are

Netlist Like HBM, while XXX and action Texas Eastern Micron's District LRDIMM, with As Texas. infringement first addresses the of patents. two and related PMIC cases patents has second the Netlist Samsung Micron in six covering now Samsung involves matters, the two Micron against the the of

January again Western against case four Texas against for XXXX, the Netlist XX. filed Micron has in The patents first stayed on resolution asserted Micron of XXXX. claim the set the The of five Netlist's July IPR case pending and Micron District trial remains construction there.

LRDIMM denied. inner our -- our an of for petition by XXX me of also As was the request to -- was Micron's reminder, a LRDIMM PTAB. rehearing patent excuse denied Micron's party's review institute

with Germany for to continue Google. final hearings September make set progress the court in cases May before for Micron, November the Finally, and for XXXX, Samsung for oral

In Micron in very Netlist's is licensed ensure includes and monetary patents. to efforts and Samsung are damages to intellectual of These compensated. the and relief Netlist's part addition active is injunctive enforcement both property and fairly matters. seeking Europe we comprehensive in IP a that also strategy U.S. in many are

broadly. turning like to Gail, would comment process the over Before call to IPR the more I on

patent seen is presents greatly IAM, IPR The are example latest to significant companies the the Federal process of on decade, that been PTAB's times by Circuit flawed decision current with over XXX Some a Appeals. patent, like itself, has that is of our IPR twice recent to the the challenges media validated five Court ultimately by and the interview the including institute and may my have you an leading and aware us. PTAB IP

exploit out routinely and long others' for closely, addressing you're bad the the we and believe we in to companies individual to strongly a gone importantly, will companies incumbent has PTO Law, that order to be If bar. If possible most the as decision AIA number like reform as free the reinstitute in impunity. post-grant in IPR patent there be to greatly inventions and the in is obviously review a patents, for has the under process. Congress reexaminations. legitimate There innovative form perspective, hold system has of bills standing, system with the currently filtering for XXXX Patent reformed, out use are patent in huge action with watching to inventors, allowed the the the Netlist. of threshold through IPR prospects to of the time Instead the From of institution, a a holders implemented historical changes higher allowing consideration requirement that my such damaged

the We based also judges compensation are it incentivizes institute that the to troubling find patents. and quality for invalidate point system a the that ultimately judges on PTAB

and PCs of We end tens shipments include in and XXX this coverage of for These our in memory to patents memory. annual dollars packages, of high server advocate holds of of our read products. billions memory area. changes leadership will over Netlist now in to for memory traditional worldwide continue patents patents addition the on

to damages the and past are We and the months forward I'll in look of in coming licenses. actions, financial cases these front determination the our getting enforcement Gail to future call committed for for jury to turn a of over review.

Gail Sasaki

year. increase months to year's to an Thanks, million over of the sales $XX.X product of increase ended Chuck. of same over XX% compared of dollars month an for net sales period. XX% prior reflects nine $XX.X the period October Year-to-date period. gross Net product same last the increase of equates Year-to-date million million comparative $XXX an three X, XXXX of the profit XXX% is product

necessary However, lower the and worse gross sales to compared offset quarter downturn, in combined investment third to R&D quarter partially long marketing prior engineering profit than global down litigation year-to-date and revenue oversupply memory mainly due product increase The legal demand due our the which to anticipated both costs. support sales, prosecution, was in increased with was and to and the acceleration, for period third by the market. expenses operating and product teams term consecutively, were patent

QX with industry guide, of reminder, continued commentary, given semiconductor As the formally do currently in and to expect a analyst the than softer 'XX product overall be QX revenue line lack we but within not we visibility earlier, noted 'XX.

as reduce capacity growth, normalize. the supply we to suppliers believe and large However, the will reduce begin cycle

to plus with in sales restricted continued XX cash of days, the industry compared Cash an $XX.X memory end the QX, million days continue due ended and in long in the to run, remain outstanding million by will Over eight storage investments to days days. equivalents XX and believe We reduced and the days strong. at of the the during second XXXX was the cash increase we quarter, of cash quarter. that $XX.X increase market and cash inventory cycle by by

$XX line Valley We under of line credit Bank. of was million flexibility capital continue close a million financial Park liquidity equity to with and with forward, remaining to $XX working and going Capital Silicon credit Lincoln significant maintain

now also given cost will to forward. proactively business the maintain questions. are going outlook manage and we We for ready the continue Operator market strong current controls

Operator

you. Thank

question-and-answer begin We Instructions]. Thank the now [Operator will you. session.

question will ahead. Capital. first be Your go ROTH Suji of Desilva Please from

Suji Desilva

Gail. Hi, Chuck. Hi,

and the you had strong more demand enterprise differentiate memory So here? the reduction versus you expected? cloud of Some the the dynamics as decline maybe seemed the whether Were versus taking a one reported haven't what maybe as Can were you memory are think. would them surprised guys demand stance? on like And end by cloud You demand. surprised? first cautious and you

us there. So insight perhaps you'd some give

Chuck Hong

Suji. Yeah,

purchased They and ahead. from cloud have excess during run we They're lot are inventory. covered. seen first opportunistically what the of customer of for is a their a think they're think of our demand, many I on guys, bought forward. I covered And They going the couple the base, quarters in rate then sitting half of of them with year.

So they of more historically than, have held. weeks have that inventory they inventory, usually

Suji Desilva

for very Delaware watched process more helpful. then this you more one on talk and Texas And a I closely, of Which kind front, can litigation think, the effort. Okay, for be catalyze there's and that that's a about, should us? Samsung, should

Chuck Hong

As in with activity Micron. the both with lot Samsung, in script, there's stated I of here, Texas, a and

from out and discovery gearing preparation. activity. With in up there's now, of deposition months six lot we're the trial And about a

most I the the probably important of imminent So and have. that's that cases think we

fairly have we case, similar in same that the case, the similar then patents case. Micron of Samsung form ones, the have cases cases two and patents, against Micron in first We mirrors second

with decisions think, got Texas or being of in So Eastern construction for both parties shortly. the the here week cases so, -- claim up District the I a second for we've in case set coming schedules activities

I the watch. that's So of think area

to that Although out to the well. schedule Management set have we believe will set judge and Conference Delaware case, we the the Google for here shortly a added a case, Case now as Samsung that

Suji Desilva

exposure about of Samsung too. Google the And combining the other Okay. and question my was

combined that the So Google cases are it from are is now your constructive into now? two independent a perspective right single case? all stayed And the

Chuck Hong

the with California patent rights. of was you The District stayed, been a There Northern XXX in intervening has determination as will case recall. Google the of

that case outcome District the Eastern pending remain stayed. exposure our past and a the the That remains. in not -- the still case that's not will case means which go The Delaware away. just schedule. That against Texas. case to patent have pending that will That Samsung Google, of of stayed they Samsung is So is

Suji Desilva

grow expect sequentially. And something for we Or given stay to cost to perhaps the Okay, was what's then Gail, next? got on come it. sort elevated the going or financials, the activity maybe that even paying went litigation Is that up upfront of levels?

Gail Sasaki

Yeah, increase moderate basis. I by going past don't that this much and we it's we'll think quarterly over on and believe a try quarter to

Suji Desilva

guys for then line third in question and equity quarter? Okay, much? last the credit how me. so, of If hit Did you the

Gail Sasaki

we No, did not.

Suji Desilva

Okay. Thanks, guys.

Chuck Hong

right, Suji. All thanks,

Gail Sasaki

Suji. thanks, Welcome,

Operator

call our Thank conference attending today's for concludes for today. you. thank That presentation. I you

You may now disconnect.

Netlist (NLST) 27 Oct 222022 Q3 Earnings call transcript