Yahoo Finance Netlist, Inc. (PNK:NLST) Q1 2024 Earnings Call Transcript
Netlist, Inc. (PNK:NLST) Q1 2024 Earnings Call Transcript April 25, 2024
Netlist, Inc. misses on earnings expectations. Reported EPS is $-0.07 EPS, expectations were $-0.05. NLST isn't one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good morning, everyone, and welcome to the Netlist First Quarter 2024 Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions]. Please also note, today's event is being recorded. At this time, I'd like to turn the floor over to Mike Smargiassi, Investor Relations. Sir, please go ahead.
Michael Smargiassi: Thank you, Jamie, and good day, everyone. Welcome to Netlist's first quarter 2024 conference call. Leading today's call will be Chuck Hong, Chief Executive Officer of Netlist; and Gail Sasaki, Chief Financial Officer. As a reminder, you can access the earnings release and a replay of today's call on the Investors section of the Netlist website at netlist.com. Before we start the call, I would note that today's presentation of Netlist's results and the answers to questions may include forward-looking statements, which are based on current expectations. The actual results could differ materially from those projected in the forward-looking statements because of a number of risks and uncertainties that are expressed in the call, annual and current SEC filings and the cautionary statements contained in today's press release. Netlist assumes no obligation to update forward-looking statements. I will now turn the call over to Chuck.
C.K. Hong: Thanks, Mike, and hello, everyone. In the first quarter, our product revenue came in at $36 million, a threefold increase from a year ago period. This performance reflects further improvement in both the price and demand environment. The two recent earthquakes in Taiwan have resulted in minimal market disruption, but we continue to expect additional price increases for both DRAM and NAND products as we move through the rest of the year. As the memory market continues to rebound, Netlist remains well positioned to capitalize on the positive market conditions. Now turning to the legal update. Thus far this year, we have received disappointing results in the IPRs at the Patent Trial and Appeal Board. For the five asserted patents and Netlist's $303 million jury award against Samsung, in that case, we've now received final written decisions of unpatentability for those five patents.
We are reviewing each of these decisions carefully and considering next steps. Parties have 30 days to file a request to challenge the result at the PTO itself. This appeal process can take several months. And if denied, the PTAB will enter a final decision and denial. This then opens the window to file an appeal with the U.S. Federal Circuit Court of Appeals. For the '339 patent covering LRDIMM, Netlist has already filed a notice of appeal with the Federal Circuit. We expect the Federal Circuit appeal process to take 18 to 24 months to reach its conclusion. For the '918 and '054 patents covering on-module power management technologies for DDR5 memory modules, we plan to file an appeal to the Federal Circuit. Finally, in regard to the '060 and '160 patents covering HBM memory, we will decide shortly whether to file a request for the rehearing by the PTAB panel or a request for the PTO Director review.
As these proceedings move forward, I would note the jury verdict and judgment against Samsung in the Eastern District of Texas remains in place, and we await a final order from the court. Last week, Netlist's Claim 16 of the seminal '912 patent was also found unpatentable. The '912 patent has been subject to five distinct reviews at the USPTO and Federal Circuit between 2010 and today, or 14 years of its total available life. In that time alone, the Patent Office has seen five different directors. And now the '912 patent was found for the first time to be unpatentable by this recent PTAB panel. The '912 has been the subject of serial reexaminations and abusive attacks and was validated 5x over, including by the Federal Circuit Court of Appeals.
A leading semiconductor chip on a computer robot arm, reflecting the technology advances of the company.
Only now in year 14 of its near continuous scrutiny has this Board decided that Claim 16 of the '912 patent may be obvious, and this was an IPR filed by Samsung admittedly acting at Google's behest. In so doing, this Board has unwound over a decade of decisions made by its predecessors at the PTAB itself and the Federal Circuit Court of Appeals and made clear that the purpose of the PTAB is not about killing bad patents but killing good patents if it serves their interest in some way. The '912 history is the poster child of how to abuse post-grant review processes and prevent innovators like Netlist from stopping large infringers in court. It is disturbing to see the USPTO reconsider the validity of this patent for the sixth time and only now reversed more than a decade of decisions.
We're considering all post-decision options standard and otherwise to redress this unprecedented in justice. In the Eastern District of Texas, the court has separated Netlist's consolidated cases against Micron and Samsung. The jury trial against Micron was set to begin April 29. However, earlier this week, it was rescheduled to May 20 due to a last-minute emergency. The court has not set a trial date for the parallel Samsung case, but we hope to have a day set after our trial against Samsung in the Central District concludes. In the breach of contract case against Samsung and the U.S. District Court for the Central District of California, Judge Mark Scarsi has set the final trial conference for May 6, and the jury trial start date of May 16.
We are looking forward to this proceeding because this trial represents Netlist's first opportunity to bring all of Samsung's past actions to light before a jury. We expect the trial to last approximately one week. Our case against Micron in the Western District of Texas is still currently stayed, but we filed a motion to move this case to the Eastern District of Texas. We're making this motion as the case has been sitting in a nonassigned judicial docket and is still not assigned to a judge. This case involves Netlist's patents covering Micron's use of DDR4 LRDM technology and two of the four asserted patents in this case have already been found valid and patentable by the PTAB. In summary, the memory market continues to improve. And we are preparing now for a very busy month in May with 2 federal jury trials to conduct: The breach of contract case against Samsung in Los Angeles and the patent infringement case against Micron in Marshall, Texas.
Now I'll turn the call over to Gail for the financial review.
Gail Sasaki: Thanks, Chuck. For the three months ended March 30, 2024, total revenues were $35.8 million compared to $9 million in the year ago period. This was a 297% increase from the first quarter of 2023 and a 7% increase on a sequential quarter basis. The revenue increase highlights the strong turnaround in the memory market from the year ago period. And while we do not formally guide given our booking and shipping for the second quarter of 2024 to date plus the industry outlook for continued growth in both memory demand and pricing, we currently expect a moderate increase in revenue for the second quarter of 2024 when compared to the first quarter of 2024. The increase in operating expense for the first quarter was mainly due to increased legal expense related to the number of active campaigns and upcoming jury trial preparation.
We do expect legal costs to remain elevated through the second quarter of 2024, after which we anticipate reductions through the end of the year. We ended the first quarter with cash and cash equivalents and restricted cash of $41.1 million compared to approximately $53 million at the end of 2023. With a $10 million working capital line of credit and approximately $34 million available on the equity line of credit, we continue to maintain significant financial flexibility and liquidity going forward. And as always, we manage the operational cash cycle very carefully with days in sales improved by 48 days over last year as well as days in inventory improved by 57 days over last year's Q1. Operator, we are now ready for questions.
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