Everspin Technologies(MRAM) - 2024 Q4 - Annual Report

PART I Business Everspin Technologies, a pioneer in MRAM, reported reduced revenue and net income in FY2024, operating a hybrid manufacturing model and serving a concentrated customer base Fiscal Year 2024 vs 2023 Financial Highlights | Metric | 2024 | 2023 | | :--- | :--- | :--- | | Revenue | $50.4 million | $63.8 million | | Gross Margin | 51.8% | 58.4% | | Net Income | $0.8 million | $9.1 million | - The company is a leading supplier of discrete MRAM components and also generates revenue through licensing its technology and intellectual property[17] - Everspin's product portfolio includes: - Toggle MRAM: In production since 2008, used in industrial, medical, automotive, and data center markets - STT-MRAM: Targets DRAM, SRAM, and NOR Flash replacement, with applications in SSDs, persistent memory, and FPGAs - TMR Sensors: 3D magnetic field sensors for consumer electronics[21][22][27] - The company utilizes a hybrid manufacturing strategy, performing back-end-of-line (BEOL) processing at its 200mm facility in Chandler, AZ, and partnering with GLOBALFOUNDRIES for full-flow 300mm STT-MRAM production[19][39] - A significant portion of revenue comes from a concentrated customer base. In 2024, the two largest end customers accounted for 37% of total revenue, with one customer representing more than 10%. In 2023, the two largest customers accounted for 32% of revenue[36] - As of December 31, 2024, the company held 563 issued patents and had 131 pending patent applications[56] Risk Factors The company faces significant risks from the cyclical semiconductor industry, supply chain dependencies, intense competition, customer concentration, and cybersecurity threats - The business is subject to the highly cyclical nature of the semiconductor industry, which can lead to significant fluctuations in product demand, capacity, and pricing[65] - Everspin relies on third parties for manufacturing, packaging, and testing, particularly a single foundry, GLOBALFOUNDRIES, for higher-density products. This exposes the company to risks of capacity constraints, price fluctuations, and reduced control over production[69][70] - The loss of one or several major customers could significantly harm financial results, as a large portion of revenue is derived from a small group of customers[88][89] - The company's ability to use its net operating loss (NOL) carryforwards is limited. As of Dec 31, 2024, federal NOLs were approximately $89.2 million. A 2016 ownership change under IRC Section 382 is expected to cause $43.8 million of these federal NOLs to expire unutilized[133][134] - Cybersecurity threats, including ransomware and data breaches, pose a significant risk to operations, intellectual property, and sensitive data, both within the company's systems and those of its third-party service providers[119][121][125] Unresolved Staff Comments The company reports no unresolved staff comments - None[154] Cybersecurity Everspin implements a cybersecurity risk management program, overseen by its board and managed by a dedicated team, to identify, assess, and mitigate threats to its information systems - The company implements processes to identify, assess, and manage material risks from cybersecurity threats to its information systems and data[155] - A Cybersecurity Team, led by the Senior Director of IT and involving internal functions and external service providers, manages cybersecurity risks[156][159] - The board of directors oversees the cybersecurity risk management process, receiving periodic reports from management on significant threats and mitigation efforts[162][165] Properties The company leases all its facilities, including headquarters and manufacturing in Arizona and a design facility in Texas, deemed adequate for operations - The company leases office and manufacturing space in Chandler, Arizona, and a design facility in Austin, Texas[166] - Lease terms for its main facilities extend to 2027, 2028, and 2029, with options to renew[167] Legal Proceedings The company is not aware of any legal proceedings that would materially adversely affect its financial position or operations - The company is not aware of any legal matters that will have a material adverse effect on its financial condition[169] Mine Safety Disclosures This item is not applicable to the company - Not applicable[170] PART II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities Everspin's common stock trades on Nasdaq under 'MRAM'; the company has never paid dividends and plans to retain earnings for growth - The company's common stock trades on the Nasdaq Global Market under the symbol "MRAM"[172] - Everspin has never declared or paid cash dividends and does not currently plan to, intending to retain earnings for growth[174] Management's Discussion and Analysis of Financial Condition and Results of Operations In 2024, revenue and net income declined significantly due to lower product sales and gross margin, resulting in an operating loss, despite an improved cash position Results of Operations (in thousands) | Line Item | 2024 | 2023 | | :--- | :--- | :--- | | Total revenue | $50,402 | $63,765 | | Gross profit | $26,126 | $37,245 | | (Loss) income from operations | $(7,091) | $5,885 | | Net income | $781 | $9,052 | Revenue Breakdown (in thousands) | Revenue Type | 2024 | 2023 | Change | % Change | | :--- | :--- | :--- | :--- | :--- | | Product sales | $42,203 | $53,123 | $(10,920) | (20.6)% | | Licensing, royalty, etc. | $8,199 | $10,642 | $(2,443) | (23.0)% | | Total revenue | $50,402 | $63,765 | $(13,363) | (21.0)% | Adjusted EBITDA Reconciliation (in thousands) | Line Item | 2024 | 2023 | | :--- | :--- | :--- | | Net income | $781 | $9,052 | | Depreciation and amortization | $1,731 | $1,205 | | Stock-based compensation | $6,713 | $5,005 | | Interest expense | $— | $63 | | Income tax benefit | $(40) | $(16) | | Adjusted EBITDA | $9,185 | $15,309 | - Gross margin decreased from 58.4% in 2023 to 51.8% in 2024, attributed to a shift in product mix, decreased FAB loadings, and lower licensing revenue, partially offset by yield improvements[191] - Research and development expenses increased by 16.2% to $13.7 million in 2024, mainly for the development of the new xSPI family of STT-MRAM products[193] Cash Flow Summary (in thousands) | Cash Flow Activity | 2024 | 2023 | | :--- | :--- | :--- | | Cash provided by operating activities | $7,099 | $13,128 | | Cash used in investing activities | $(3,060) | $(1,385) | | Cash provided by (used in) financing activities | $1,112 | $(1,592) | Quantitative and Qualitative Disclosures About Market Risk This section is not required as Everspin is a smaller reporting company - Not required for a smaller reporting company[225] Financial Statements and Supplementary Data This section presents the audited financial statements for 2024 and 2023, including the auditor's unqualified opinion and critical audit matters, along with detailed notes Report of Independent Registered Public Accounting Firm Ernst & Young LLP issued an unqualified opinion on the financial statements, highlighting critical audit matters related to inventory accounting and a strategic award - The auditor, Ernst & Young LLP, issued an unqualified (clean) opinion on the financial statements[231] - Critical Audit Matters identified were: - Accounting for Inventory: Challenging due to high transaction volume and multiple data sources, including third-party suppliers - Accounting for the strategic award: Challenging due to the complex and judgmental nature of evaluating its terms and applying accounting guidance by analogy[236][238] Financial Statements Financial statements show asset growth and increased cash in 2024, despite a significant decline in net income and revenue compared to 2023 Balance Sheet Highlights (in thousands) | Account | Dec 31, 2024 | Dec 31, 2023 | | :--- | :--- | :--- | | Cash and cash equivalents | $42,097 | $36,946 | | Total current assets | $64,201 | $57,879 | | Total assets | $77,789 | $67,303 | | Total current liabilities | $9,914 | $8,778 | | Total liabilities | $15,196 | $13,382 | | Total stockholders' equity | $62,593 | $53,921 | Income Statement Highlights (in thousands) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Total revenue | $50,402 | $63,765 | | Gross profit | $26,126 | $37,245 | | (Loss) income from operations | $(7,091) | $5,885 | | Net income | $781 | $9,052 | | Diluted EPS | $0.04 | $0.42 | Notes to Financial Statements Notes detail accounting policies, revenue disaggregation, a significant strategic award, debt repayment, and limitations on substantial NOL carryforwards - In August 2024, the company received a strategic award to develop a manufacturing plan for aerospace and defense, potentially worth $14.6 million over 2.5 years. In 2024, $6.1 million was recognized as other income from this award[321][323] - The company's credit facility was paid in full in March 2023, and there was no outstanding debt as of December 31, 2024[339] - As of Dec 31, 2024, the company has federal NOL carryforwards of $89.2 million and state NOLs of $48.3 million. Utilization is limited by IRC Section 382 due to a 2016 ownership change[365][366] - The company has a joint development agreement (JDA) with GLOBALFOUNDRIES for STT-MRAM technology, which grants GF exclusive manufacturing rights for a defined period[357][358] Revenue by Geography (in thousands) | Region | 2024 | 2023 | | :--- | :--- | :--- | | Hong Kong | $16,220 | $10,748 | | United States | $9,968 | $14,599 | | Germany | $7,168 | $9,767 | | Japan | $5,974 | $12,216 | | All other | $11,072 | $16,435 | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[372] Controls and Procedures Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2024, with no material changes reported - The CEO and CFO concluded that disclosure controls and procedures were effective as of December 31, 2024[375] - Management concluded that internal control over financial reporting was effective as of December 31, 2024, based on the COSO framework[377] Other Information This section discloses an amended employment agreement for the CFO and a Rule 10b5-1 trading plan adopted by the CEO - On February 26, 2025, the company entered into an amended Executive Employment Agreement with CFO William Cooper, specifying severance benefits upon termination without cause or resignation for good reason[380] - CEO Sanjeev Aggarwal adopted a Rule 10b5-1 trading plan on December 6, 2024, for the potential sale of up to 100,000 shares of common stock[385] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[386] PART III Part III incorporates information on directors, executive compensation, security ownership, and related party transactions by reference from the 2025 Proxy Statement Directors, Executive Officers and Corporate Governance Information required by this item is incorporated by reference from the company's 2025 Proxy Statement - Information regarding directors, executive officers, and corporate governance will be included in the definitive proxy statement for the 2025 Annual Meeting of Stockholders and is incorporated herein by reference[388] Executive Compensation Information required by this item is incorporated by reference from the company's 2025 Proxy Statement - Information regarding executive compensation is incorporated by reference from the 2025 Proxy Statement[391] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters Information required by this item is incorporated by reference from the company's 2025 Proxy Statement - Information regarding security ownership is incorporated by reference from the 2025 Proxy Statement[392] Certain Relationships and Related Transactions, and Director Independence Information required by this item is incorporated by reference from the company's 2025 Proxy Statement - Information regarding related party transactions and director independence is incorporated by reference from the 2025 Proxy Statement[393] Principal Accountant Fees and Services Information required by this item is incorporated by reference from the company's 2025 Proxy Statement - Information regarding principal accountant fees and services is incorporated by reference from the 2025 Proxy Statement[394] PART IV Exhibits and Financial Statement Schedules This section lists all financial statements, schedules, and exhibits filed with or incorporated by reference into the Form 10-K report - This section lists all financial statements, schedules, and exhibits filed with the report[396][397][398] Form 10-K Summary A Form 10-K summary was not provided in this report - Not provided[417]