Good afternoon and welcome to the Everspin Technologies Third Quarter 2017 Financial Results Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] I would now like to turn the conference over to Dave Allen. Please go ahead.

Thank you, Gary and thanks to all of you for joining Everspin's third quarter financial results conference call. Before we begin the call, I'd like to remind you that this conference call contains forward-looking statements regarding future events, including but not limited to our expectations for Everspin's future business, financial performance and goals, customer and industry adoption of MRAM technology, and successfully bringing to market and manufacturing products in Everspin's design pipeline, and execute on its business plan and deliver shareholders an attractive opportunity with long-term growth model and healthy profits. These forward-looking statements are based on the estimates, judgments, current trends, and market conditions and involve risks and uncertainties that may cause actual results to differ materially those contained in the forward-looking statements. I would encourage you to review our SEC filings, including third quarter 2017 Form 10-Q filed with the SEC on November 13, 2017 and other SEC filings made from time to time in which we may discuss risk factors associated with investing in Everspin. All forward-looking statements are made as of the date of this call, and except as required by law, we do not intend to update this information. In today's call, we will be referencing GAAP and adjusted EBITDA numbers. These EBITDA numbers are provided to enhance the investors' understanding of Everspin's operating performance as it primarily excludes certain non-cash charges for depreciation and amortization and stock-based compensation expense, and the compensation expense related to divesting of common stocks held by GlobalFoundries resulting from our joint development agreement. The use of these adjusted EBITDA is not meant to be a substitute for the results presented in accordance with GAAP, but rather should be evaluated in conjunction with GAAP. This conference call will be available for audio replay in the Investor Relations section of the Everspin website at www.everspin.com. Joining me today are Everspin's CEO, Kevin Conley, and CFO Jeff Winzeler. I'd now like to turn the call over to Kevin. Kevin?

Thank you, Dave. Good afternoon, everyone. I'm pleased to be speaking with you on my first Everspin quarterly earnings call. It has been a little over two months since I joined, and I want to reiterate how pleased I am to be working with a very talented team that possesses such leadership technology. Let me extend that by expressing my gratitude for the strong and supportive engagement I've received from many of our key customers and ecosystem partners. I would like to start this call by announcing we achieved record shipments and revenue in the third quarter. While our revenue was below the guidance provided last quarter, we have beaten EPS guidance due to higher margins. Jeff will provide the financial specifics later in this call. Now I would like to share with you our vision and how we see the market developing toward it. We believe that there is a strong trend that is creating a consistently growing appetite for ubiquitous data. As a result, computing from edge devices to the data center has an increasing demand for persistent or nonvolatile memory that delivers critical performance gains and power savings. Today we already see this opportunity manifesting itself in the IoT space creating a significant opportunity for Spin Transfer Torque or STT-MRAM technology in embedded applications. We are pleased by the progress we have made with our joint development partner, GlobalFoundries in developing embedded STT-MRAM or eMRAM for industrial and wearable IoT SOC customers on their 22 nm FDX technology node. GlobalFoundries has further plans to develop and commercialize this 22FDX eMRAM technology for automotive applications. GLOBALFOUNDRIES' recent announcements and announcements from others in this space indicate that the STT-MRAM revolution is beginning and we are proud to enable GlobalFoundries as our partner to provide high reliability, low power…

Thank you, Kevin and good afternoon everyone. I'll start by reviewing the third quarter 2017 income statement. Revenue in the third quarter was a record $9.0 million with product sales representing 99% of total revenue or $8.9 million while licensing, NRE and royalty contributed $75,000 in the quarter. While total revenues for Q3 2017 at $9.0 million were up $84,000 or 1% higher than revenue in Q2 2017, product sales were up $871,000 an increase of 11% quarter-over-quarter. Q3 also marked a record for Toggle MRAM sales. Toggle MRAM sales were $7.6 million and were up $1.1 million or 18% from the second quarter of 2017. Through the third quarter of 2017 our Toggle MRAM revenues have grown 35% compounded annual growth rate over the past four quarters. Last earnings call we provide $9.9 million as the midpoint for our Q3 revenue guidance while our actual revenue for the quarter was $9 million. Late in the quarter we had a tool that went down in the factory preventing us from shipping approximately $300,000 of sensor product. That tool is now fixed and we expect to have revenue in the fourth quarter. The remaining $600,000 delta from guidance was Toggle MRAM product that we built and shipped into distributor inventories. The increased inventory levels at our distributors are a reflection of the strong demand for our products. Customers are increasing their forecasts and the distributors are bringing in more products to support the growth. We were able to build, ship, and invoice for this product, but we will not recognize this revenue until it ships out of the distributors. Our legacy product sales which tend to fluctuate quarter-over-quarter were $1.3 million and down 17% compared to Q2. Excluding nominal revenue from nvNITRO sampling we did not record any meaningful STT-MRAM revenues…

Thank you, Jeff. I would like to close by extending gratitude to my predecessor, Phill LoPresti. His dedicated effort helped make Everspin what it is today and positioned us for our next chapter of success. As I settled into the role of Everspin's CEO, I'm pleased with our progress in transforming our company from a technology innovator into one that is also a market innovator. Our focus on execution, technology leadership, team strength, operational excellence, and strong partnerships will be the means by which we maintain our leadership. We intend to invest in our vision through the addition of key resources, the development of new products, and research and development of advanced technologies. With our current outlook of a longer ramp to STT-MRAM revenues it is therefore critical that we fund the activities that will keep us at the forefront while we develop the potential of this market. In preparing for fulfilling this need we have filed our S3 registration as Jeff highlighted. We will now open for questions.

[Operator Instructions] The first question comes from Kevin Cassidy with Stifel. Please go ahead.

Thank you and congratulations on the progress. I wonder if you could us a little more details around the decisions that go with 256 Mb device for production and how much difference is there in price and was your customer able to adjust, I guess how was he adjust if he wanted 1 Gb does he just have less density or able to get more devices on the card and may be can you give us an idea of what the content is for Flash Array?

I am afraid I'm not at liberty to share details of our customer's design on this call, but going back to the first part of your question, the motivation for shifting to the 256 Mb was looking at a set of requirements that the customer had in terms of what had to be delivered in their qualification schedule and with the review of where we are at with the 1 Gb. There were certain risks that were better avoided through the schedule that the 256 Mb can provide. And in working with our customer we were able to adjust the algorithms of the design as well as bringing other elements to how we manage the interface for our memories that allowed it to still meet their requirements. In terms of the ASP differences, those are relatively minor in terms of differences between the 1 Gb and 256 Mb.

Okay, going forward, you're going to be leading with the 256 Mb device?

Yes.

Okay and maybe one other question, is there still a strategy for the 1 Gb and to make sure I get this right, this 22 nanometer but there might be an offering of 256 Mb at that 22 nanometer also for perhaps a lower cost solution?

Let me clarify our 256 Mb is a 40 nanometer part and that is the part that currently is preparing to ramp for production. Our 1 Gb part is a 28 nanometer part which we will communicate further once we’ve passed those milestones that I indicated in my prepared remarks.

Okay, thanks for clarifying that. I’ll go back in the queue.

Okay.

The next question comes from Robert Mertens with Needham. Please go ahead.

Hi and thank you for taking my question. It's going along with the questions around 256 Mb and 1 Gb design, I know previously there's been some commentary around 256 Mb more targeting as these were as 1 Gb get the densities where you can address the rate market. In terms of how you look at the two different products from a customer's perspective, is there much of a difference for customers going with one product over the other besides for the timing of the products and of course the densities? Are there any other challenges I guess with this customer going from the 1 Gb product to 256 Mb or any other potential customers that were looking at that 1 Gb product?

There are some customers who due to their requirements will need the 1 Gb capacity point and this particular customer had a preference for the 1 Gb, but given the situation was amenable to working with us to make their solution possible with the 256 Mb. Did that answer your question Robert?

Yes, I think that helps and just if I can throw in a follow up real quick, in terms of gross margins and we talked about the one time benefits last quarter and then versus this quarter did pretty well maybe with the products and mix come in stronger than expected. When we look forward in the next quarter or so and then also throughout the next year, are you thinking that the target is going to being increased closer towards this 56% to 58% or still trying to target around that historical gross margin target that you've been talking about previously?

Yes, so Robert in the short term we've had three consecutive quarters for our product margin has been above our corporate target. It's been running in the high 50s to low 60s and so on our current product mix of Toggle and our legacy products, we believe as we said in our prepared remarks that we can continue to operate at that kind of level. In terms of longer term it's really a matter of our future product mix and specifically where we are in the ramp of any technology at any given time. So as you can imagine as we ramp 256 Mb the yields initially will be lower than high volume manufacture and therefore costs will be a little bit higher and margins will be a little bit depressed. As we get into high volume manufacturing, clearly we're trying to work to get those margins above this target margin percentage. So I think it's really situational. It depends on where we are in a given quarter, but we're working hard to try and move our overall corporate margin up from what our target has been in the past.

Great, that's helpful. I appreciate the question.

The next question comes from Matt Ramsay with CanaccordGenuity. Please go ahead.

Thank you very much. Good afternoon guys and I apologize for any background noise here. Airports are as they are. Yes, Kevin, I guess I just wanted to ask you maybe give you a chance to expand further upon that the decision is going to come down from the board and take over as an Chief Executive of the company and any kind of background that you can share with us and investors about how that decision would come to and why the board felt the need for that decision to happen? I know obviously lots of respect for Phill and he had done previously, but there's a change in direction here that I think is worth some time for discussion on this call and I appreciate that it is a bit of an awkward question, but I thought to get something that investors will appreciate you’re talking about it. Thank you.

Sure Matt, thanks for that question. I think what the board recognized was that the company in its evolution was at a point where the hard work and the innovation of the memory technology now need to be transformed into innovation that needs to happen in creating new markets. It's a large challenge in terms of developing these markets and finding those paths for these innovative components to come to market. And as we do that of course we also have to be building an operational machine that will be able to scale and support that business as we grow it. So really it's that transformation in the company's lifecycle and that it needed to happen and for that the board felt it appropriate to bring news leadership to the team to make that happen.

Got it. That makes sense. Thank you for that. And then sort of along those lines of building out the operational strength, it will be interesting as you guys go back to the market here with the S3 filed and raise some additional funds for the company, may be Kevin you could talk maybe rank order areas of the investment, is it people, is it supply chain, is it I'm just curious that what the priorities are as additional capital is brought into the company? Thank you.

Well, people are certainly a priority for me as a leader in this company, both working with the team too and making sure that we have the strength and we need to do and develop the talent that the company has. I think as we look forward to this it's to continue giving us the operational resources that are needed to keep the company moving forward. And I would say it's going to be a blend of different things that will drive the need for that capital. And part of that as you indicated is people, part of it is supply chain, part of that is investing in capabilities for advanced research and development.

Yes, Matt I would add to that. We're clearly increasing our margin profile right, we're growing our revenue, we're increasing our margin profile and we're not generating enough gross profit right now to cover all of our operational spending. So we have some cash reserves. We need to be prudent in terms of potentially shoring up those cash reserves to continue to fund the company, so we can continue to build and grow.

Got it. That makes sense and then if I could just sneak one more in, I think I agree with the change in direction with the nvNITRO program it has been maybe a little bit out of the company’s wheelhouse, Maybe you could talk a little bit more about the new channel the you’ve been there and what's the potential timing and magnitude of revenue of that product as it is built out under the new business model? Thank you, I appreciate the time.

Thanks for that question Matt. I think the company had a standing relationship with SMART Modular Technologies. This change in direction only strengthens that partnership in terms of making it clear on building upon the strengths of each of the partners in that relationship. So in terms of what it means going forward, I think we've had really strong engagement with them after making the shift and have able to see progress in terms of how we'll go and attack that market together. In terms of when we're likely to see revenue from those products, it's difficult for me to comment on their customer sales profile, that’s a better question for them, but in terms of our expectation is that with the qualification of the nvNITRO completing we would expect revenues starting from those products to be generated early next year.

The next question comes from Richard Shannon with Craig-Hallum Capital Group. Please go ahead.

Hi guys. Thanks for taking questions for me as well. Maybe I'll ask a couple more tactical questions start off here. You've had some excellent results from your Toggle product line here and last, so far the first three quarters of the year. In terms of the third quarter I wonder if you could give us a sense of the end markets drivers here, I know automotive to some extent industrial have been very good this year, I wonder if you can characterize that? And as kind of a secondary follow on to that, as you look into your fourth quarter guidance I wonder if you can give us a sense of kind of composition there Toggle versus STT versus licensing for the fourth quarter in terms of guidance?

Yes, so as you indicated our Toggle growth has been pretty good this year. I would say the majority of that growth is really within the existing three markets that we have. And we're continuing to sell more and more products. We're increasing our number of customers and the business is strong and we had some commentary about the distributor inventory growing and it's really a function of availability of that product and then been ready and able to sell to end customers. So we've been pleased. It's the same models that we've been selling into or the same markets that we've been selling into and we're seeing growth across the board. In terms of product mix for the fourth quarter, we really don't break that down in terms of Toggle versus royalty versus legacy product. As we said in our guidance, we do expect to see some pretty healthy revenue increases in the fourth quarter. We do expect to see the Toggle business continue to grow as well.

Okay, sounds good. Let's see so a question on operating expenses with change in strategy on the nvNITRO or products side here, wondering if this has a change in the longer-term kind of trajectory of OpEx or are you going to take the expense you had previously plan to put in there and kind of put it back into the base technology development?

Yes, so R&D spending in general which is where the majority of the OpEx for nvNITRO resides. We have some variability within that spending although it's been surprisingly flat this year. I would expect some reduced spending in nvNITRO OpEx, but we also have increased OpEx, R&D spending relative to qualification of 256 Mb and 1 Gb products. Specifically to the JDA spending that we're doing with GlobalFoundries as well as our own R&D consumables to get those products up in running.

So Richard, I might also add that the beyond the product development expenses that would have been incurred fully productizing this on our part, would have been also complemented by another set of expenses, building the capabilities of the company to become a module supplier and that’s also, that is something that we won't incur next year.

Okay.

Yes, Richard I think that reduction in spending is really against our forecast as opposed to history right, we've been building that capability as opposed to - and so any future reductions are really against that forecast.

Okay, fair enough. Guys, I’ll just throw one last question and jump in the line here, but maybe back on the Toggle product line, I want to - care to offer some sort of thought process or qualitative or quantitative forecasts about how we should think about that product line growing into next year, are we seeing the benefit of an up cycle here in spending in some of these markets that might trail off or you can expect to continue to grow at this kind of a healthy rate going well into 2018?

I think in terms of the trends that are driving these, we do think these are long term and sustainable in terms of the demand drivers in the markets that we serve. Many of the design wins are long in nature of their lifetime and so from that standpoint we believe that demand will continue to be strong. We additionally will be putting more focus on bringing higher yields and more stability which will also have positive impact on the metrics of the business going forward. And that said, long term the expectations of how that growth eventually will be limited by the total amount of output and at this time we're not planning investment that significantly increases that beyond what an optimized fab will provide us.

Okay, great. I appreciate those thoughts. That's all the questions for me guys. Thank you.

The next question is a follow up from Kevin Cassidy with Stifel. Please go ahead.

Thanks for taking my follow up. Just on your design, your sales pipeline or your design wins where there more engagements this quarter, can we get a sense as to what you're seeing in the market as you're moving into 2018 and the interest in MRAM Technology?

So Kevin we continue to see new designing activity from our Toggle MRAM products those continue on at a healthy pace which gives us the ability to continue to see that product line remain on its healthy growth track. In addition, in the past quarter we also did see new engagements on our Spin Torque products as well that are helping - giving us a broader customer engagement and in those products as well.

Okay and maybe just a comment on the competitive landscape, have you seen new competitors or any new competitors, may be?

So maybe I should split that question in 2 parts. From the competitive landscape on the embedded front, which is where most of the announcements have been, with the availability of competitive technology nodes. We see several players out there in the 2x-nanometer range offering their embedded MRAM technologies. And again, I think that's an indication that there is healthy demand for the technology in embedded STT applications, primarily being driven by industrial and IoT and consumer customers. And there will be, I think, follow-on demand from automotive as well. And so that landscape develops with a healthy amount of competition there. Today, in discrete memory components, we don't see any discrete MRAM component area. We don't see discrete competitors, any new announcements over the past quarter.

Okay, great thank you.

[Operator Instructions] Showing no further questions, this concludes our question and answer session. I would like to turn the conference back over to Kevin Conley for any closing remarks.

I would like to leave you with some of our upcoming events. We'll be demonstrating the nvNITRO solution week at Supercomputing 2017 in Denver, Colorado in conjunction with our go-to-market partner SMART Modular. We will also be showing our STT-MRAM technology at the SNIA Persistent Memory Summit on January 24, 2018 in San Jose, California and at Embedded World 2018 in Nuremberg, Germany later in the year. Thank you very much.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.