Netlist, Inc. Q4 FY2025 earnings call

• In 2025, strengthened long - term strategic position with progress across product and IP initiatives. Saw significant improvement in full - year financial results. • Strong demand for memory in second half of 2025 and sales and marketing execution drove financial performance. • Lightning product sales volume ramping up in system integrator market; completed qualifications at a global server OEM which is in testing with end customers. • Supporting legacy product customers through 2026 and 2027 via prior agreements. • Investing in strategic R&D for next - generation technologies like CXL NV DEM, low power MR DEM, and LPMR - DIMM. • On IP front, defending favorable jury verdicts, securing appellate affirmances of patent validity, expanding enforcement actions, ITC investigation into Samsung, Google, Supermicro, federal court actions against Samsung and Micron, appellate activity with Micron and Samsung, and advocating for patent owner rights including commenting on proposed patent reform legislation and participating in IP conferences.

For the 12 months ended December 27, 2025, revenue was $188.6 million, an increase of 28% from 2024. In the fourth quarter, revenue more than doubled. Lightning, Netlist's overclocked and low latency DDR5 line of products is ramping up in the system integrator market segment. Industrial and networking customers continue to require DDR4 based Netlist custom solutions. Revenue contribution details not explicitly broken down into specific percentages for each segment but overall revenue growth is highlighted with factors like strong demand for memory and product execution driving the top line.

• Currently expect total first quarter 2026 revenue to show further improvement from the fourth quarter of 2025. • Operating expense for full year 2025 declined 36% due to reductions in IP legal fees and SG&A cost controls. • Expect litigation expenses in 2026 to be about the same as in 2025.

• Industry dynamics of memory chip shortage and price increases may not persist as expected if new fab capacity doesn't come online as anticipated. • Legal proceedings like ITC investigation, federal court actions, and appellate activities have uncertainties such as the outcome of trials, appeals, and the impact on litigation expenses. • Dependence on memory chip supply and related market dynamics which could impact product sales and revenue if supply issues aren't resolved.

Q: In relation to the current market supply and demand environment, Chuck, can you share your perspective on the current memory supply and demand environment? I know you shared a little bit in the formal remarks. And how much of this is being driven by the transition to DDR5 versus AI capacity driven? And then with the new fabs that have been announced, do you think these are sufficient to meet demand or is more needed?

A: Hey, Jared. There's a global shortage of memory chips, really the raw material for all computing hardware, really, from laptops to mobile phones to... servers and AI servers. While we focus mostly on high - end servers, servers for AI, we're feeling the effects of the access to raw material, the shortage of DRAM, mostly DRAM raw material, and some NAND. But on the other hand, the ASPs, the prices of all products that are related to memory have increased significantly. So that is offsetting the lower volumes in supply. I don't know that any of this is impacted or due to transition to DDR5. A lot of it is driven by AI. I think OpenAI committed to some 40% of the output of HBM over the next few years. But they're not buying that yet, and then you've got commitments to companies like NVIDIA and AMD for HBMs. So that's taking up a lot of the DRAM components that are going into mobile phones and PCs that are now allocated for HBMs. And fundamentally, until there is new capacity, this capacity that's in place has been, you know, it was CapEx that was invested some three, four years ago. So there's really not too many ways to increase the overall capacity. It's kind of a zero sum game. If you allocate more to one segment of the market, you get less on the other side. And until there is new capacity that comes online towards the second half of 27, I think all sectors of computing will continue to face this memory shortage.

Q: And then to go a little bit deeper into demanded pricing, how do you see the demand environment playing out for the remainder of the year? Do you expect it to be front - loaded as customers grab all the product supply that they can today? And do you think that the significant price increases for memory that we've seen in the past couple of quarters will hold?

A: There's two different price points that we look at in our industry. One is the OEM pricing. There are two manufacturers from the DRAM manufacturers being sold to computer manufacturers. And then there's the spot pricing, kind of the broker market. So the In the last six months, the OEM pricing for DRAMs have gone up probably 3 to 4x. The spot market has gone up probably 7 to 8x. So it's kind of an unprecedented type of increase. We think most of that price increase will hold through this year, which means revenues for people that are unit supply and unit sales will likely go down for most people. So I think If you're able to secure supply, I think you're in a good position. And over time, if supply becomes an issue, I think it's going to become more difficult.

Q: Switching topics a little bit, now that you have two CIFC - affirmed patents, the 314 and the 608, What are the next steps to get the stayed Micron case in the Western District of Texas moving? And is there anything else that might keep it stayed?

A: Yes, I think this case now is open to being unstayed now that the patents have been affirmed by the appellate court. So Our outside lawyers will take steps to reopen this case and get it moving again. So it's a legal motion practice that they'll undertake to get this case back open and on track.

Q: And then in terms of litigation expense cadence expectations for 2026, it seems like there's a little bit more activity in the pipeline this year with the hearing at the end of this week, some additional IPR deals and ITC in November. How are litigation expenses expected to track in the remainder of calendar year 26 relative to 2025 levels? Any color would be helpful.

A: I'll take that. So we believe it'll be about the same as 2025. Um, As you can see, even if the Western District of Texas case is unstated, it won't happen in 2026. There won't be any court cases in 2026. Obviously, the ITC will be spread out throughout the year, even though the trial is not until the end of the year. But we don't expect expenses to be much higher than 2025.

Q: And then my final question in terms of products, how do you see Lightning revenue building in 2026? And what's your visibility into the duration of the process from proof of concept to material order process?

A: Well, we've gone through this process. We're kind of at the tail end of the qualification and validation at the major OEM, our top customer, and they have their end customers. So we're finalizing those validations. We've been It's been ongoing for six to nine months. In terms of the system integrated market, we're already shipping in some good volume, and that is ramping up. And the demand in that side of the market is very strong, not just because of the shortage, but people moving to overclock, higher speed DRAMs, both for high - frequency trading, and a lot of these applications that require very fast execution, trade executions. So, yeah, you know, we're seeing good traction, and we look forward to seeing continuing growth of this product line through the course of this year.