Netlist's CEO Discusses Q1 2012 Results - Earnings Call Transcript

Netlist, Inc. (NLST)

Q1 2012 Earnings Call

May 15, 2012 5:00 p.m. EDT

Executives

Mike Smargiassi – IR, Brainerd Communicators

Chuck Hong – Chairman and CEO

Gail Sasaki – CFO

Chris Lopes – VP, Sales

Analysts

Rich Kugele – Needham & Co.

Mark Kelleher – Dougherty & Co.

Richard Shannon – Craig-Hallum Capital

Presentation

Operator

Good day and welcome to the Netlist first quarter 2012 earnings conference call and webcast.

All participants will be in listen-only mode. Should you need assistance, please signal conference specialist by pressing the star key followed by zero. After today’s presentation, there will be an opportunity to ask questions. (Operator Instructions). Please note this event is being recorded.

I would now like to turn the conference over to Mr. Mike Smargiassi. Mr. Smargiassi, the floor is yours, sir.

Mike Smargiassi

Thank you, Mike, and good afternoon, ladies and gentlemen. Welcome to Netlist’s first quarter 2012 conference call. I'm here today with Chuck Hong, Chief Executive Officer of Netlist; and Gail Sasaki, Chief Financial Officer; and Chris Lopes, Vice President, Sales.

As a reminder, our earnings release and a replay of today’s call can be accessed on the Investors section of the Netlist website at www.netlist.com.

Before we start the call, I would note that today’s presentation of Netlist 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 the press release today. We assume no obligation to update forward-looking statements.

During this call, non-GAAP financial measures will be discussed. Reconciliations for those directly comparable GAAP financial measures are included in the press release which was filed on Form 8-K.

I would now like to turn the call over to Chuck.

Chuck Hong

Thanks, Mike. Thank you all for joining us today.

During the first quarter we continued to execute our plan to advance our position in the high-performance computer market. Today we jointly announced with HP the availability of HyperCloud for sale with HP’s Romley-based servers. With this announcement, HyperCloud is now available to ship with the world’s top three highest volume servers.

HyperCloud, or in industry’s nomenclature, HCDIMM, are the only 16-gigabyte memory solution available on the market that runs 3 DIMMs per channel, 1333 mega-transfers per second. This advantage translates to a 25% performance benefit compared to industry standard memory offering which runs at 3 DIMMs per channel and [66]. We’re now working closely with our OEM partners to broadly introduce HCDIMMs to various verticals while many of these end-users on their own have begun to test HyperCloud in their [end-applications] such as virtualization, analytics and CAD simulations.

We remain confident that HyperCloud can beat any competing server memory product’s performance by a wide margin. Therefore, over time we expect HyperCloud to be adopted by the market as the de facto high-performance solution, enabling the industry to finally break through the historical bottleneck that has existed in servers between the CPU and memory.

With the momentum generated by adoption of HyperCloud by IBM and HP, there’s been a flurry of interest expressed by other server and storage OEMs and cloud operators alike. Many are now seeking to qualify HyperCloud, following in the footsteps of the world’s two largest manufacturers.

Regarding our financial performance, Gail will provide a detailed overview of our results in a moment, but I would like to highlight some key points about our first quarter numbers. Our revenues came in above the prior year’s first quarter but were down sequentially from Q4 2011. However, we were able to maintain strict cost controls even as we strategically invested in our technology, marketing and sales resources. As a result, we achieved positive adjusted EBITDA.

As we noted on our last call, we have entered a transition phase in our business marked by a reduction in shipment of our products associated with previous server generations, namely PERC and NV2, and a ramp-up in our new product lines HyperCloud, VLP and NV3.

We remain very confident in the market potential of these new products as well as our overall growth potential. We believe we are in a strong position to capitalize on our proprietary technologies and key alliances in the high-performance computing and storage sectors. We’ve maintained a disciplined approach to spending with the goal of positioning our business for sustainable profitability as our revenues begin to expand in the latter part of the year.

Before I provide additional updates on our progress, I would like to now turn the call over to Gail for the financial review.

Gail Sasaki

Thanks, Chuck. As Chuck mentioned, our first quarter results largely reflect a transitional period for our operation as we move forward in launching our new products, while the contribution from our more mature products attached to prior-generation servers was decreasing.

Our revenue for the first quarter ended March 31, 2012 were $14 million, up 16% when compared to $12 million for the first quarter of 2011 and down 15% sequentially due to the product line transition just mentioned. Gross profit for the first quarter ended March 31, 2012 was $5.4 million or 39% of revenues, compared to a gross profit of $3.8 million or 32% of revenues for the first quarter of 2011, an increase in gross profit dollars of 43% due to a more optimal product mix and a sequential decrease between quarters of 9% due to lower revenues.

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