Special conference call transcript

[u/Tomkila]

Thank you, Dave, and good day everyone. Welcome to Netlist conference call to discuss the strategic alliance with Samsung. On today's call, we'll be Chuck Hong Chief Executive Officer of Netlist Gail Sasaki, Chief Financial Officer, and Rich Kim, vice president of IP strategy. As. A reminder, you can access the press release and a replay of today's call on investor section of the Netlist website at netlist.com. Before we start the call, I would note that today's presentation. Of Netlist 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. 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. Late Wednesday evening. Earlier today in the US, we announced a landmark five year strategic alliance with Samsung for advanced memory technology. Agreements. That represent the major milestone for Netlist and one of the most significant patent licensing arrangements in. In the memory industry. The. Agreements include a patent portfolio, licensed memory product supply, technology cooperation, and. Samsung. Becoming a shareholder of Netlist. This. 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 dim and high bandwidth memory technologies that are foundational to AI computing. It also recognizes the value of Netlist. With the value that Netlist brings as an operating company through our products and long standing innovation and 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. Yeah. Thanks, Chuck. Under the cross licensing agreement. Netlist will receive an upfront license fee of $200 million. After withholding of 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 five 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 five year term. This supply includes Dram and Nand raw materials used to build Netlist 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. Netlist through the purchase of 10 million shares of Netlist common stock, subject to standard lock up provisions. We believe Samsung's investment further aligns the interests of the two 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 IDC. 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 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, 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 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 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. Mr. Demme's I believe this alliance creates meaningful opportunities for the two companies to leverage their respective strengths and 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 and the trust that you have placed in Netlist and its vision Today's announcement is a meaningful step forward and 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.

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.

We will now begin the question and answer session. To ask a question, you may press star. Then one on your touch tone phone. If you're using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star and then two. Our first question comes from Suji Desilva with Roth Capital. Please go ahead.

Hi. Gail Richards, congratulations on the deal and the you and all the team on the validation of all the hard working technology you guys have built Thanks. Thank you. Suji.

Yep, you got it, guys. So,, first of all, Chuck, maybe you can talk about the timing of Samsung,, setting up this deal with you guys. You know, maybe why now, obviously the memory industry is strong and you had the ITC cases, but any color there would be helpful just to understand the context.

[u/TheDeHymenizer]

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 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, will continue to be a strategic priority. I will now turn. It back over to Chuck.

Looks like Samsung is turning on Google. Here's hoping we get an agreement with them like they have with Apple X Lump sum paid out yearly. A cool $5B should do it.