Summary of Netlist’s Q1 2024 Earnings Call
Participants:
• C.K. Hong: President and Chief Executive Officer
• Gail Sasaki: Executive Vice President and Chief Financial Officer
Financial Performance
Revenue:
• Q1 2024 Revenue: Netlist reported $35.8 million in total revenue, a significant increase from $9.0 million in Q1 2023. This 297% year-over-year growth reflects improved market conditions and higher demand for memory products.
• Sequential Growth: Revenue also increased by 7% compared to the previous quarter, highlighting a continued positive trend.
Operating Loss:
• Q1 2024 Operating Loss: The company recorded an operating loss of $17.0 million, up from $15.8 million in Q1 2023. This increase was primarily due to elevated legal expenses related to active litigation and upcoming jury trials.
Cash Position:
• Cash Reserves: As of March 30, 2024, Netlist had $41.1 million in cash, cash equivalents, and restricted cash. The company also maintains significant liquidity with a $10 million working capital line of credit and approximately $34 million available on an equity line of credit.
Market Conditions and Product Demand
Memory Market Rebound:
• Pricing and Demand: The memory market is showing signs of recovery, with improved pricing and demand for both DRAM and NAND products. Netlist expects this trend to continue throughout 2024, benefiting their sales and revenue growth.
Customer Demand:
• Positive Outlook: Strong demand from customers is anticipated to drive further revenue increases in the second half of 2024. Netlist is optimistic about continued market improvement and incremental top-line growth.
Legal Update
Patent Litigation:
• PTAB Decisions: The Patent Trial and Appeal Board (PTAB) recently found several of Netlist’s patents unpatentable. Netlist plans to appeal these decisions to the Federal Circuit Court of Appeals. The appeal process is expected to take 18 to 24 months.
• ‘912 Patent: Claim 16 of the ‘912 patent was found unpatentable, despite previous validations by the USPTO and Federal Circuit. Netlist is exploring post-decision options to address this outcome.
• Upcoming Trials: Netlist has multiple jury trials scheduled for May 2024, including a breach of contract case against Samsung and a patent infringement case against Micron. These trials are critical to enforcing their intellectual property rights and seeking damages
Future Prospects
Product Innovation:
• CXL Development: Netlist is investing significantly in developing Compute Express Link (CXL) technology, expected to become a key market in the second half of the decade. This investment aims to position Netlist at the forefront of emerging high-performance computing and AI applications.
Financial Strategy:
• Cost Management: The company expects legal expenses to remain high in the short term due to ongoing litigation but anticipates reductions in these costs later in the year. Careful management of operational cash flow and investments will be crucial for maintaining financial stability.
Conclusion
Netlist’s Q1 2024 earnings call highlighted significant revenue growth and a positive outlook for the memory market. However, the company faces challenges from ongoing legal battles and associated costs. Netlist’s strong cash position and strategic investments in new technologies, like CXL, position it well for future growth. The company’s valuable patent portfolio and ongoing litigation outcomes are critical to its long-term success and potential attractiveness as an acquisition target.
Participants:
• C.K. Hong: President and Chief Executive Officer
• Gail Sasaki: Executive Vice President and Chief Financial Officer
Financial Performance
Revenue:
• Q1 2024 Revenue: Netlist reported $35.8 million in total revenue, a significant increase from $9.0 million in Q1 2023. This 297% year-over-year growth reflects improved market conditions and higher demand for memory products.
• Sequential Growth: Revenue also increased by 7% compared to the previous quarter, highlighting a continued positive trend.
Operating Loss:
• Q1 2024 Operating Loss: The company recorded an operating loss of $17.0 million, up from $15.8 million in Q1 2023. This increase was primarily due to elevated legal expenses related to active litigation and upcoming jury trials.
Cash Position:
• Cash Reserves: As of March 30, 2024, Netlist had $41.1 million in cash, cash equivalents, and restricted cash. The company also maintains significant liquidity with a $10 million working capital line of credit and approximately $34 million available on an equity line of credit.
Market Conditions and Product Demand
Memory Market Rebound:
• Pricing and Demand: The memory market is showing signs of recovery, with improved pricing and demand for both DRAM and NAND products. Netlist expects this trend to continue throughout 2024, benefiting their sales and revenue growth.
Customer Demand:
• Positive Outlook: Strong demand from customers is anticipated to drive further revenue increases in the second half of 2024. Netlist is optimistic about continued market improvement and incremental top-line growth.
Legal Update
Patent Litigation:
• PTAB Decisions: The Patent Trial and Appeal Board (PTAB) recently found several of Netlist’s patents unpatentable. Netlist plans to appeal these decisions to the Federal Circuit Court of Appeals. The appeal process is expected to take 18 to 24 months.
• ‘912 Patent: Claim 16 of the ‘912 patent was found unpatentable, despite previous validations by the USPTO and Federal Circuit. Netlist is exploring post-decision options to address this outcome.
• Upcoming Trials: Netlist has multiple jury trials scheduled for May 2024, including a breach of contract case against Samsung and a patent infringement case against Micron. These trials are critical to enforcing their intellectual property rights and seeking damages
Future Prospects
Product Innovation:
• CXL Development: Netlist is investing significantly in developing Compute Express Link (CXL) technology, expected to become a key market in the second half of the decade. This investment aims to position Netlist at the forefront of emerging high-performance computing and AI applications.
Financial Strategy:
• Cost Management: The company expects legal expenses to remain high in the short term due to ongoing litigation but anticipates reductions in these costs later in the year. Careful management of operational cash flow and investments will be crucial for maintaining financial stability.
Conclusion
Netlist’s Q1 2024 earnings call highlighted significant revenue growth and a positive outlook for the memory market. However, the company faces challenges from ongoing legal battles and associated costs. Netlist’s strong cash position and strategic investments in new technologies, like CXL, position it well for future growth. The company’s valuable patent portfolio and ongoing litigation outcomes are critical to its long-term success and potential attractiveness as an acquisition target.
