NLST - Earnings call 3 2023

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Operator

Hello and welcome to the Netlist's Third Quarter 2023 earnings conference call and webcast. [Operator Instructions] Please note, this event is being recorded. I would like now to turn the conference over to Mike Smargiassi of Investor Relations. Please go ahead.

Michael Smargiassi

Thank you, Alan, and good day and everyone. Quarter Chief Call. Leading and Executive Chief Officer. Third be call Gail Netlist's Financial Hong, Chuck Officer to XXXX today's Conference will Sasaki, Welcome of Netlist;

a can section Investors the Netlist earnings As on netlist.com. of access at reminder, today's call you release a and replay website of the the

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

Chuck Hong

everyone. hello, and Mike, Thanks,

encouraging Third and quarter memory indicates environment improved a begun XX% inventory market industry on product to improve. basis, continues revenue demand recover normalizing a is Current prolonged momentum. customer has commentary downturn. The the to after showing sequential

may XXXX. fourth for We products supply the SSD in DRAM quarter face in products have and prices DRAM shortages in leading-edge already increases seen and

and breed big the X products what create same for expect DDRX in new processing, at new many high data GPU, time. past features used coming the of need which strategic top to supply modeling. standpoint, Netlist new that created is allows servers product puts Hynix been AI demand over memory performance agreement quarters. AI position serves seminal a us high hold are read standard the by Memory We product process memory must AI or portfolio decade these from good The more memory drives and and with which ahead. position in the density, need continue to of high servers generative leverage and maximize the AI Netlist's the that's with a part trends memory power band different AI that now Even our line for computing HBM. From a memory decades. in Those this on be into DRAM is in low IP on positive to AI. boost for of and technology, dozens is computing a created important PCs SK memory creating the past AI. key are in memory being order other We decade patents revenue plan for our AI capitalize products leading-edge value the to the to incorporated the unique of the to

in the request. On issued on would the ago. the contract, a like from of October the from weeks XXXX California's the NAND generally order legal NAND Court Court Federal Ninth development. Samsung's I from Netlist DRAM the X decision start obligations Appeals stems with weeks that should narrowly summary development action split findings with party's in the ruling to Netlist very in specific agreement, at XXXX. Samsung summary contract Ultimately, interpretation Samsung for in wording Samsung breached as asking the ago February Samsung license obligation court the appeal in held Court the contract District Netlist's breach supply the agreement a Netlist's products on consider XXXX evidence DRAM the entered of its obligations the properly favor against District that district various judgment and of Circuit, Netlist's is language favor Circuit to Netlist U.S. of the appealed to and joint the the material that judgment in the the Court's and of in appeal term components. judgment requires terminated This that agreement. for front, for -- the issued and plain and the read case under requires District granting Central breach that breach view of supporting X was Ninth be Netlist joint to on alone and Samsung's contract limited to which supply materially

shared Ninth theories clearly pointing is and and view this case. Netlist's appeal wrote Circuit Samsung's by for strong who Judge Desai, very their litigation flawed to of dissent the a made

forward look evidence District it the other decision, specifically harmful that Court X extrinsic finally light made evidence the were to to were in much District numerous the reconsider viewed supply revisit Court prudent Samsung, by on provision judges judge thought the in to the not ask the bring up We the However, actions shown by agreement majority the the of in committed of to this instance. that first and light the ruling not to which the to opportunity and on trial. in present meaning the the of to issue jury only considered

We in quickly. believe [indiscernible], Judge Central proceedings will the California, that resume judge District the of our

trial will would Judge The consideration the defined Netlist pay and for Turning entry matter they to going trial. all on to Chief infringement in judgment the law unit Samsung. an into at December all a The forward. Samsung then and a the the final that set their issues, a post per Netlist's issue of is of Eastern Texas, District for motion final motions Samsung filed ongoing take of filed motions various for lost and judgment for have Netlist date judgment was of Gilstrap as confirming against on a briefing order. post-judgment million. total recognize to royalty April to motions X. XXXX briefing In submission judge a a $XXX entitled new case April win a award following the is

we The continues final XX is months Appeals. Following to of notice the notice If process an make of bulk expect that for patent the the royalties for related accrue the Netlist's judgment, the LRDIMM the The Samsung PTAB patents that selling its challenging decisions would I case, written on entered the X of the products our X XXX in award before through both appeal and comprising written from XXX memory which Texas by and its would final patents and invalidity the X take estimated patents. Court and District segment to revenues an infringing two tried judge, decision of Samsung Circuit X-member a in of smallest filed, but a unpatentable. XX% file $XXX of entry Samsung the of their DIMMs XX made of by will remaining of to District liability PTAB final December liability of the Samsung total case, or of the about DDRX of be million. appeal found the XXX up the patents, to order significant was rendered this that were this Eastern recent judgment. April. Texas panel bulk the Eastern up a in challenge overall note decade. Separately, HBM appeal components, final the A interest Federal the of will claims

highly XX, is will me which against the Judge trial a that in against remaining of of the we to terms EDTX scheduled with other on claim the conference invalidity decision liability April a patents Netlist products January Fact of to this the order bulk of be Samsung. siding and and and the all also currently closed, XXXX. the case, by jury before up rendered that. stake. case for trial type patents, PTAB made same The District set Eastern with final Micron as for Let On has The last Micron's Texas, same received the XX. case the of actions, successful addresses court December written the virtually favorable were pretrial X is May discovery April. On key of claim Wednesday a in willful infringement the part correct Gilstrap on construction week, in Chief at final

This for order validity strong trial. infringement provides proving foundation and at

we for XX, dollars XXXX. These the and case close in stated resume infringing discovery will We recent scheduled place growth calendar of are which simplifying to forward this front will hearing, jury cases -- HBM to scheduled basis entry PTAB's This NVDIMM. claims took and is X and against pretrial Gilstrap. consolidated related date the look The of XXXX, XX. that volumes DDRX large DDRX patent, stayed, the set March strategic in and components, Micron, offer DIMMs we early which Netlist's products currently the the with trial District related their cover case be The fact the Given infringement been XXX which well, very on on Western April this in Micron-Samsung Judge for went of market. court significant and for and resurgence a pursuing that has Micron patents September to covers of decisions start case LRDIMMs DDRX AI conference Chief court's of the products. in case memory NVDIMMs This and LRDIMMs to XX case we November thought on order. which case patent claim X Texas expect favorable construction LRDIMMs construction XXXX. has Netlist involves claim Micron's Micron's sometime of is

this to decisions the The NVDIMM on of of be these the be year, patents LRDIMM to invalid. the found course reading not the yesterday. and has reading on patent PTAB Over invalid X last that coming

we expect Delaware puts PTAB, validated and court's action. court in us coming in claim favorable case entry in to in the in patents Delaware, as construction a We the XX. October to very Samsung, X the case hearing held look that Having the In the of construction position claim a the order on forward months. strong by against Google our resume in

a validity XXXX XXX case patents. is version the remedy these Patent request XXX. Netlist now these and the held found the infringement action on the infringement At September The the the a oral Court, hearing of oral the a there's on validity German infringement European in pending relief, EP European which EP court March and if Samsung to Finally, would of stayed cover only EP for asserted date by on the is an X holds enter Germany court were essentially Federal on Dusseldorf that and a a needs EP Samsung. of The in on confirming stayed Netlist's XX, assessment if XXX. Germany did Court's stands for X. of against for of Netlist's judge Dusseldorf valid. the has The for July patents EP with injunctive thus were hearing favorable Patent -- the for stay on confirmed implicitly the ruling scheduled move the found PTAB, XXX stay court German arguments until the September LRDIMMs. of XXXX forward case infringement once patents Federal hearing, found, ruling default court that German

remains rights summary, IP to its and technology In committed defending fairly Netlist patents. its licensing and

we of emanate pending a Netlist its products, once more than the DDRX AI. at noted and forefront push XXX in Netlist's AI innovation patents, with the memory the are for requirement in again, applications Netlist's role industry. efforts. spotlights past, and the for of from and of have product which industry's innovation technology development As the rapid into has growth long XX-plus memory key history HBM The of patents the

the Now turn I financial for call over the to review. Gail will

Gail Sasaki

Thanks, Chuck.

Third environment, which quarter XXXX. to revenue demand in reflect accelerate results analysts the improvement product through predict

new believe the enterprise our both patent to HBM well trends SK robust a for include marked memory, Chuck, as on to amounts and positive in DDRX strategic the centers, due Hynix AI of discussed agreement beginning market We which well strong large demand positioned the supply our these capitalize by as are servers growth portfolio. of we As currently cycle. suggested data

formally offering year Netlist's to that through but not currently as dynamics moderate improvement. We of of market raised quarter the will ended fourth performance and approximately $XX cash QX in the direct $XX We As quarter. cash rest the $XX million do continue cash demand a end QX approximately registered million to as guide, sequential reminder, the we from we quarter show restricted anticipate the ASPs noted improve given of products and earlier, we the and for move million and third XXXX equivalents during with XXXX. to at cash net compared

line equity $XX addition, raised QX, $XX credit close remaining with we to In approximately that million during line. million proactively $X under the million on of

line with million with significant working maintain liquidity to we of forward. Silicon addition, $XX Valley and flexibility continue going financial In credit capital a Bank,

this we improved cash last which operational we to always, relative very days year's QX 'XX the As period remain which in questions. stable manage activity. Operator, cash carefully, through are cycle for legal by increased burn why as is go to of QX, now even we compared we XX expect ready

Operator

first comes of MKM. [Operator Instructions] question Our Suji Desilva from Roth

Sujeeva De Silva

finding Central the of to District that What the finding if question, Eastern $XXX any, Samsung to the District understand, million? in is, case Court the So Samsung. of of first for just relationship Texas

Chuck Hong

Suji, which material it they yes, is terminated quite breached license, He the the did breach was was and evidence was so and significant decided overwhelming. when the that put not plain Samsung go Central jury and to whether District the a of this case it Circuit -- And California Ninth the about to that thought a the Court license. judge license California was that had to breach and in need and of that front judge the we District the a that jury did license, found appealed the obvious, himself. a not material case, in a

So he decision himself. made the

in Judge supply which appealed. obligation to impact decision Scorsi, -- evidence the of was would our be the has supply in decision case the of And was is or did interpretation the Judge agreement, came extrinsic obviously narrow mean of that review the District Samsung's that the and he been had Scorsi. interpretation in the remand, to a will the the Texas interpretation, jury was breach. If Eastern the case to if himself And determining that put that upon has the breached not interpretation. infringement not that supply was that Samsung have That front Samsung obligation whether the was case, the of specifically Samsung broad, if stand. that that issue further once general to been again was per so a award, all that is because will will key did the decide license tied out whether development, -- interpretation will back that the obligation mean the joint that or which be of remanded Now of that whether remains the and of the would therefore, infringement award, the

information was So there. of that hope I clear. lot a There's

Sujeeva De Silva

that back the that judge And to the absolutely -- time procedure then for thereafter. What's process? No, Chuck. frame timing helped going and in the of California to the

Chuck Hong

and judge may of a extrinsic himself. this the provision reach evidence is from on, possession and point his judgment case to up summary in take That in conclusion officially when schedule the to original another will either interpretation He retrial him depending X that the decide same or will him, it remanded on on his that November is he decide whether the docket is clause left changes there to for supply of of agreement. the he

Sujeeva De Silva

to being way. too that way a technical here? discuss X And comparable a language to intended helpful. fair wondering, and where that it whether is you And wondering such other as as broad Hynix the arrangement is oversimplifying, but is question? that I'm if X you I'm that just be the may to or this worked have was of it availability being with question working had similar is seem different Is the That's questioned product. intended Or is

Chuck Hong

Yes.

strength and they've supply significant That because strokes, not that Samsung I in intent. patent supply. both it Samsung the because IP the think in agreement, a after to up invaluable, and that signed value terms of And times, of products after was only is is as agreement. They was no intent support is able enormously rare then did arrangement the supply That couple portfolio, is cut and that there companies. secure, have is and we've seen memory customer. then of the very the Hynix initially obviously, be case is contracted supply broad lot was agreement, memory through there a pandemic supply. it's they the any our that, -- provided perform. And the other unilaterally to with -- of -- no of years, virtually a components and of at us support. There to to clearly of the before a down

intent in agreement per the is parties. its and Hynix, is the of the it between agreement, performing stark agreement So contrast which to to

Sujeeva De Silva

Okay.

that's next it Is expect went because very we Okay. financial the up that something to of litigation elevated expense activity in the the all in quarters? Or few the should spiked Maybe Chuck here. helpful. here? quarter that is the up on stay scale, that

Gail Sasaki

Yes, think I that and the couple quarters over of be then there. next track that it elevated will will from down

Sujeeva De Silva

margin expansion in? here, what what needs for needed to levels? Okay. just the recover happening just Great. prior to to gross to to question, that And recover revenues lower I it's as are then happen know understand for the relatively last here, elements

Gail Sasaki

Well, as QX. seen pricing in enter we have a shift we

ASP -- in increased, to as and demand And will our from help terms the and up I customer better the then of side going has we more, it's as to pricing going power So our on is Hynix. flexibility continue more think should prices. it buying in help -- help we purchase

start that revenue So resale will and margins, several obviously and part is part XXXX. piece. the next of those the higher the as But kick to much increase significant to over we'll some be projects revenue go of through we the our be to custom quarters that -- our are in see of a tend is

Operator

for concluded. Thank today's now you attending presentation. has conference The

may disconnect. You now

Netlist (NLST) 31 Oct 232023 Q3 Earnings call transcript