Good afternoon and welcome to Everspin Technologies First Quarter 2018 Financial Results Conference Call. [Operator Instructions] I would now like to turn the call to over to Brett Perry of Shelton Group Investor. Brett, please go ahead.

Good afternoon, and welcome to Everspin Technologies First Quarter 2018 Earnings Conference Call. I'm Brett Perry, Vice President of Shelton Group, Everspin's Investor Relations firm. Joining me today are Kevin Conley, Everspin's President and CEO; and Jeff Winzeler, CFO. Before we begin the call, I want 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, successfully bringing to market and manufacturing products in Everspin's design pipeline, and executing on its business plan. These forward-looking statements are based on estimates, judgments, current trends, and market conditions and involve risks and uncertainties that may cause actual results to differ materially from those contained in the forward-looking statements. We would encourage you to review our SEC filings, including the 2017 Form 10-K filed with the SEC on March 15, 2018 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. This conference call will be available for audio replay for at least 90 days in the Investor Relations section of Everspin's website at www.everspin.com. And now, I'd like to turn the call over to Everspin's President and CEO Kevin Conley. Kevin, please go ahead.

Thank you, Brett, and good afternoon everyone. I am pleased to report that our first quarter results achieved records in revenue and earnings per share. Revenue in the quarter was a new high of $14.9 million including $5.5 million of licensing royalty and other revenue. Total product revenue grew more than 40% year-over-year with MRAM product revenue increasing 60% year-over-year demonstrating our continued progress in growing MRAM product sales. We also enjoyed record gross margin of 67% driven primarily by the exceptionally strong licensing royalty and other revenue. Included in our licensing revenue in the quarter was the upfront license fee associated with the multiyear agreement signed with Alps Electric at the end of the first quarter. Under the agreement, Alps and Everspin mutually granted licenses to magnetoresistive-based 3-D sensor patent portfolios for sensing products. This agreement demonstrates our ability to monetize our IP assets and generate an additional revenue stream and source of cash for Everspin. This cash and subsequent revenue coupled with the funds raised in last February secondary offering had significantly improved our balance sheet and given us more resources to advance our MRAM initiatives. On the product side, we delivered strong year-over-year growth driven primarily through increased Toggle MRAM sales helped by the increasing shipments of our 256 megabyte Spin-Transfer Torque or STT-MRAM product. In terms of STT-MRAM production in shipments, we exited Q1 ahead of our internal plan and expect this trend will continue. We believe that the investments we're making in our operations team and capabilities will help support continued strengthening of our entire business in the coming quarters. These investments not only will strengthen our own captive back-end fab operations but also position us better for the coming growth we see in our joint operations with GLOBALFOUNDRIES. One of the demand drivers behind…

Thank you, Kevin, and good afternoon everyone. I’ll start by reviewing the first quarter 2018 income statement. Revenue in the quarter was $14.9 million with product sales repressing 62% of total revenue of $9.4 million while licensing royalty and other revenue contributed approximately $5.5 million in the quarter. Total revenue for the quarter increased both year-over-year from $7.9 million in the first quarter of 2017 and sequentially when compared with the $10.1 million in the fourth quarter of 2017. As a result of adopting the new revenue recognition standard ACS 606, we’re now including our backend foundry revenues which under the new standard must be recognized over time in licensing royalty and other revenues on the income statement. Last year we recognize our backend foundry and product revenue and they are recognized like Toggle and MRAM revenue on a point in time basis. On the Form 10-Q both historic and current revenues are stated under the new rules, and there has been like-to-like comparisons of product revenues, as well as licensing, royalty and other revenues. For our MRAM products in the first quarter which includes Toggle and STT-MRAM, revenue was $8.9 million, a 60% increase from the $5.6 million in the first quarter of 2017 and an 18% increase from the $7.5 million in the previous quarter. Gross profit for Q1 2018 was $10 million up from $4.2 million from the same period a year ago and also up from $6.2 million in the fourth quarter of 2017. The increase in gross profit was primarily attributable to the increase in licensing royalty and other revenue in the quarter. As we stated on previous calls, this revenues is variable from quarter-to-quarter and is based on size and terms of each transaction and as such can affect gross profit and margins material.…

Thank you, Jeff. I like to thank the entire Everspin team that has worked incredibly hard on a multiple of fronts to deliver these notable results including both strong year-over-year growth, as well as a stronger cash position. These efforts move us closer to our vision of MRAM as the future of memory technology and more importantly strengthen the focus on Everspin's mission to drive the MRAM revolution. Now we will open the call for questions.

[Operator Instructions] Our first question comes from Kevin Cassidy with Stifel. Your line is now open.

Thank you for taking my question and congratulations on the progress. On the guidance for the second quarter, can you say what's happening with gross margin, is product gross margin coming down as the first production of the STT-MRAM is ramping?

So Kevin we don't really give guidance on the gross margin. We did say in our prepared remarks that our Q1 gross margins came in - product gross margin came in at 50% versus our target of 55%. That was due to product mix and also due to some manufacturing variances that we experienced in the first quarter. It takes a while for that material to work itself through the factory. And so you know we anticipate that we’ll continue to have some manufacturing variance that bleeds over into the second quarter of the year.

So there is no change to your long-term target of 53% gross margin, product gross margin?

Our actual target product gross margin for the company used to be 48% to 52%. We raised that at the beginning of 2018 to 55% or greater. So 55% is kind of our minimum target I was shooting for with regard to the whole product portfolio.

And maybe just one other very interesting that your hosting a MRAM Developer Day, will Everspin be the only provider of MRAM’s at the conference or at that Developer Day or are some of your MRAM competitors invited to?

So there are variety of companies that participate in the MRAM technology ecosystem, we will be the only company with MRAM components in production to our knowledge that will be participating in the show. All the major foundries who had embedded MRAM programs will be presumably presenting their along with their technology partners and other companies that are familiar names in the MRAM ecosystem are expect to be there as well.

[Operator Instructions] Our next question comes from Richard Shannon with Craig-Hallum. Your line is now open.

Maybe I’ll follow up on Kevin's first question regarding your gross margins. He didn’t ask the question directly so I’ll do that which is the product mix for product gross margin in the first quarters is that related to STT or can you give us a sense of the drivers there?

So we don’t really give that type of guidance. Again we’re - the primary products coming out of the factory today are still Toggle MRAM products. And as we’ve explained on calls in the past, within that Toggle product family we have roughly nine different major products all at different densities and different margin profile. So our goal across that product portfolio including STT-MRAM is to achieve 55% plus product margins. As Spin Torque starts to ramp as STT-MRAM starts to ramp clearly it will become a bigger part of that product portfolio but we’re trying to manage it as a portfolio.

Maybe I’ll ask a question about the sales guidance for the year second quarter here any sense you can give us of how much growth is coming from Toggle versus STT or I know you haven’t in the past but I’ll just ask a question again, where do you’re expecting your licensing revenues in the quarters from?

So I’m probably going to give you the same answer I have given you in the past. The licensing stuff truly is so sporadic and variable you know at some point in time we expect that the licenses that we worked on both through our sense of products, as well as longer-term with GLOBALFOUNDRIES on the embedded MRAM piece that royalty line will start growing and we’ll start becoming a lot more steady. But in the meantime, the licensing portion of it and the NRE portion of it is very sporadic and pretty opportunistic I would say. So, we really - it's really difficult for us to give specific guidance on what we think that number is going to be.

One last question from me for Kevin and I think I heard your comments correctly just want to verify regarding the Tier One flash array customer for the 256. Did you say that you expect that to be qualified this quarter?

We do.

What gives you that confidence alone and assuming that qualification happens would you expect to start building inventory or that customer start building inventory immediately afterwards?

I'll take that in two parts, the first one is yes we work very closely with our top OEM customers that includes sharing details about the development schedules. And so that's what gives us the confidence to comment on the timing of that product. With regard to the inventory, we have talked in a general sense that as customers approach the release of products to market generally the inventory from us is acquired prior to them building there - let’s say building their internal inventory of their finished goods products right. So we tend to be ahead of that curve in terms of the orders that we receive. I don't know if that directly answers your question, but I hope it’s helpful.

I guess Kevin, I was just asking whether you expect the inventory build that happened as soon as the qualification is completed or there's some lag there?

I see, we expect the products to be - once its qualified to start ramping sales in the subsequent quarter.

And we have a follow up question from Kevin Cassidy with Stifel. Your line is now open.

On the Toggle, MRAM products - can you talk about the design win pipeline that you have. It seems like the product mix of those and Jeff as you pointed out there's nine different types on the new designs. Is the pipeline filled with more of the higher end, higher gross margin products or is it going to be a mix going forward also?

I think it's fair to characterize that as a mix going forward Kevin.

And just a housekeeping, Jeff could you repeat again the loss per share estimate for next quarter guidance?

Sure, so from a loss per share perspective we said that it will range between $0.45 loss per share and $0.41 loss per share and the average weighted share count we're projecting to be 16.9 million shares which is reflective of secondary offering that we did in February.

Okay. I had miss heard that before. Thank you.

At this time I am showing no further questions. I’d like to turn the call back to management for closing remarks.

In closing I’d like to highlight that Everspin will be participating in the upcoming Cowen TMT Conference in New York on May 31, and the Stifel Cross Sector Conference in Boston on June 12. Please contact your sales representative at the respective firms or the Shelton Group if you would like to schedule a meeting with us. Thank you for your participation on today's call. We look forward to reporting our progress next quarter. Operator, you may now disconnect the call.

Ladies and gentlemen, thank you for your participation in today's conference. This does conclude the program. You may now disconnect. Everyone have a great day.