Netlist, Inc. (NLST) Earnings Call Transcript & Summary

Good day, and welcome to the Netlist conference call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mike Smargiassi, Investor Relations. Please go ahead.

Thank you, Dave, and good day, everyone. Welcome to Netlist's conference call to discuss the strategic alliance with Samsung. On today's call will be Chuck Hong, Chief Executive Officer of Netlist; Gail Sasaki, Chief Financial Officer; and Richard Kim, Vice President of IP Strategy. As a reminder, you can access the press 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 news 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.

Thanks, Mike, and hello, everyone. We're speaking with you from Seoul, Korea, where it's late Wednesday evening. Earlier today in the U.S., we announced a landmark 5-year strategic alliance with Samsung for advanced memory technology, agreements that represent a major milestone for Netlist and one of the most significant patent license arrangements in the memory industry. The agreements include a patent portfolio cross license, memory product supply, technology cooperation and Samsung becoming a shareholder of Netlist. This renewed partnership with Samsung, the preeminent leader in memory, represents a vital first step forward for Netlist. It validates the strength and importance of our intellectual property, including patented server DIMM and High Bandwidth Memory technologies that are foundational to AI computing. It also recognizes the value of -- the value that Netlist brings as an operating company through our products and long-standing innovation in advanced memory. I'll now turn the call over to Gail and Rich for the details of the agreements signed by the companies. Gail?

Thanks, Chuck. Under the cross-licensing agreement, Netlist will receive an upfront license fee of $200 million after withholding of Korean taxes or $239 million gross. In addition, Netlist will receive 20 recurring quarterly license fees of up to $27.5 million, also net of tax or $32.9 million gross calculated in accordance with the revenue-based formula. Over the 5-year term, this represents aggregate net license fees of up to $750 million or gross license revenues of up to $897 million. Under the supply agreement, Samsung will supply Netlist with up to $300 million of memory products annually and up to $1.5 billion over the 5-year term. This supply includes DRAM and NAND raw materials used to build Netlist's proprietary solutions as well as standard memory and storage products from Samsung for resale to our customer base. We believe this agreement provides critical sourcing assurance for our product business at a time of historically high demand and significantly constrained memory supply amid the build-out of AI infrastructure. In connection with the memory product supply agreement, Samsung will become a shareholder in Netlist through the purchase of 10 million shares of Netlist common stock, subject to standard lockup provisions. We believe Samsung's investment further aligns the interest of the 2 companies and strengthens the foundation for our relationship in the years ahead. I will now turn the call over to Richard Kim, our Vice President of IP Strategy.

Thank you, Gail, and hello, everyone. As part of the overall deal, the parties have agreed to a settlement and release of pending legal proceedings between Netlist and Samsung. Netlist, however, will continue to defend its patents in connection with Federal Circuit appeals and IPR proceedings that involve or impact other parties in addition to Samsung. We have also entered into an ITC cooperation agreement, under which Samsung will provide certain information and declarations that Netlist may use in future ITC actions against third parties. We believe the unauthorized use of Netlist's patented technologies remains widespread across the memory industry, and these agreements will allow Netlist to now focus its full attention on other infringing parties. Netlist remains committed to protecting our intellectual property and preventing the unauthorized use of our IP will continue to be a strategic priority. I will now turn it back over to Chuck.

Okay. Thank you, Rich. Over the past several years, we have worked with discipline and focus to reach these important agreements. On an annual basis, this transaction ranks among the largest patent license arrangements in the memory industry. That scale reflects the significant value of Netlist's IP portfolio at a time when advanced memory is becoming increasingly central to AI computing and data center infrastructure. Today's announcement is an important milestone. It establishes a recurring high-margin revenue stream and secures memory supply while advancing a broader strategy to leverage Netlist's product capabilities and IP leadership to position the company for sustainable long-term growth in AI computing. As part of these arrangements, the companies will jointly explore areas of technology collaboration on an ongoing basis. Samsung is a global leader in memory and also brings unparalleled resources and capacity in ASIC design and semiconductor foundry. Netlist continues to invest heavily in R&D to develop unique memory architectures, including hybrid CXL and low-power MRDIMMs. I believe this alliance creates meaningful opportunities for the 2 companies to leverage their respective strength in advanced memory and next-generation computing. Finally, I want to thank our team for their dedication and our shareholders for their continued support and patience. We understand the importance of your investment and the trust that you have placed in Netlist and its vision. Today's announcement is a meaningful step forward, and we remain focused on executing our strategy and building out sustainable long-term value. Thank you for your continued interest in Netlist. We look forward to updating you as we execute against these agreements and continue advancing our business plan. Operator, we're now ready for questions.

[Operator Instructions] Our first question comes from Suji Desilva with ROTH Capital.

Chuck, Gail, Richard, congratulations on the deal and you and all the team on the validation of all the hard work and technology you guys have built.

Thank you, Suji.

Thanks, Suji.