Introduction
Netlist has won the lawsuit that was discussed in my previous article. This shot Netlist's stock price up rapidly in the last hour of the day. It will be interesting to see how the market reacts to the news of this victory after having time to digest it over the weekend.
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I continue to maintain a strong buy rating on Netlist, Inc. (OTCQB:NLST). Netlist has won its first major legal battle in a series of multiple continuously bigger battles. The company has proven its ability to win and the value of its patents. Additionally, a company with cash issues for years has more than enough cash to grow and challenge all other infringers.
Netlist is still in what I believe will be the most valuable patent infringement case in history with its case against Google (GOOG) (GOOGL). Over the past three years, I have published nine previous articles on Netlist and its story, with the most recent linked here.
This previous article covers the company in detail, so I will only focus on the latest case in this piece.
Netlist V. Samsung
Because this was a public court hearing, some other Netlist stockholders attended the trial to pass on information about what was occurring. From this, the result of this trial is known before it hits the mainstream media. Netlist beat Samsung (OTCPK:SSNLF) for $303 million. This was over the infringement of patents since Samsung broke its contract with Netlist only two years ago, in 2021. Therefore, this value is for the infringement of Netlist technology for only about five quarters at a little over $60 million per quarter in damages.
The breakdown was 33 million in damages for the 339 patents, $147,425,000.00 for the 054 and 918 patents, and $162 million for the 060 and 160 patents. Additionally, Samsung was found guilty of infringement on every claim and found to have willfully infringed. One key quote showing Netlist's true value and likely helped them win the case is Netlist lawyer Jason Sheasby getting Samsung employees to admit that there were no other alternatives to Netlist technology for their problems in their technology.
Looking Forward
I have pulled a useful graph from StockTwits Poster Stokd showing the current litigation. Stokd has not had any editorial decisions with this piece.
Netlist still has its most significant cases with Samsung and Google, both for longer time spans and on the more valuable 912 patent.
Additionally, Micron (MU) has litigation with Netlist over multiple of the same patents coming up. These patents Netlist already has one major victory for, and Samsung's employees have said there is no alternative to Netlist technology which is a good sign for Netlist's chances in this case.
Finally, Netlist now has cash. The company has had incredible dilution over the previous 10 years, drastically increasing its share count to raise cash and survive. Finally, the company has the cash to not only grow but pursue the other infringers of its technology.
Financials
Netlist financials from its 10-K are
Net cash used in operating activities for 2022 was primarily a result of net loss of $33.4 million, non-cash adjustments to net loss of $4.2 million, partially offset by net cash inflows from changes in operating assets and liabilities of $14.2 million driven predominantly by an increase in accounts payable and accrued expenses and other liabilities and a decrease in accounts receivable and inventories. Net cash provided by financing activities for 2022 primarily consisted of $4.4 million in net proceeds from issuance of common stock under the Second 2021 Lincoln Park Purchase Agreement and $0.3 million in proceeds from exercise of stock options, partially offset by $2.1 million in net payments under the SVB Credit Agreement, $0.6 million in payments of note payable to finance insurance policies and $1.4 million in payments for taxes related to net share settlement of equity awards.
The company currently sits on $25 million in cash.
Conclusion
Netlist is a hazardous play because of the unknown factor in litigation. However, an asymmetric investment opportunity could lead to significant increases in value as the company seeks to rack up more and bigger wins in its litigation battles. Netlist is not an investment for everyone, but it could be worth looking into.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
Jacob Braun
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Analyst’s Disclosure: I/we have a beneficial long position in the shares of NLST either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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