Q2 2020 Earnings Call

Ladies and gentlemen, thank you for standing by welcome to the G.S. <unk> technologies second quarter fiscal 2020 results conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session at that time, we will provide instructions for those.

Interested.

During the Q3 to Q any before we begin today's call. The company has requested that the following safe Harbor statement.

The matters discussed in his conference call May include forward looking statements regarding future events in the future performance of GE aside technology that involve risks and uncertainties that could cause actual results to differ materially from those anticipated.

These risks and uncertainties are describing the company's Form 10-K filed with the Securities and Exchange Commission. Additionally, I've also been asked would advise you that this conference call is being recorded today October 24th 2019. That's the question. She aside technology hosting the call today is lean shoe the company's chairman.

<unk>, President and Chief Executive Officer with him are Douglas really Chief Financial Officer.

Let's say vice President of sales I would now like to turn the call. The children to Mr. Chu. Please go ahead Sir.

Welcome everyone and thank you for joining us.

Oh second quarter 2020 financial results.

Revenue for the quarter, what you live employees to the meeting.

I think that range all ball guidance provided on the fourth quarter was cool 11.6 mean to 12.6 I mean.

Gross margin in the second quarter was 56 person.

Hi Inn overall guidance, 54% to 56 person.

Good idea.

Oh sure you always shuffle.

You know common.

<unk> financial results he keeps coming down.

Do you say second time, what's your thought technology.

The second quarter, we successfully like events, all Jimmy not one chip.

That's cool.

We are all talk.

Oh common core somewhat trading section you see maliki social occasion.

Oh, you every quarter.

We've also be gone think tomorrow.

I.

Yes, it does extend the benchmark.

Yeah, I couldn't be testing all device.

Against the one meeting I sent therapies benchmark.

Well it wouldn't be testing against benchmarks with larger disappeared.

Oh committing wanting to me and not beating items.

<unk>.

Before credit Union.

We also preparing to long does not stayed up its benchmark multiple cost systems or do you just get into you demonstrate the scalability all device.

So city consulting or Jimmy not one is affected by funky as I'm sure they either so physical quarter.

In addition, we are putting all the collection costs in preparation for customer demonstration in line paging double.

He already this calendar year.

Oh, Yeah, I can continue to develop the software library.

No reason for.

Okay, Jimmy not once you get into 2000, sorry [laughter].

We are fortunate.

All coke business generally sufficient cash to so Paul do you called out roadmap and the phone deals all going on deep budgets.

Of course of R&D spending and the will all ingenuity.

The Jimmy not Roadmaps.

<unk>, Jimmy not one and that Jim and I too.

Oh, the P. Newman or do you walk that we haven't done we solve our customers'.

And now bring to market shows that all device it would increase through the process it screen.

We see little working Poles, and a scalable architecture.

Most of the crucial jimena, it's the memory soaking design I mean, just sized coal capability. Even then we'd done you memory chip design resolve yeah software expertise.

Given that has an impressive.

Good liquidity, including the program into phase the alone multi port labor cost simple ones.

Somebody coal to tens and tens.

Since the full person.

We had made some in this call with football pass to launch all do caused by sustained solid financial performance all coal business Funky School.

Yeah, numerous exciting new market opportunities.

Hey for the complete and we are making progress on that couldn't all go.

Oh No second my team for all your how we'll end the call me month well freezing.

No no coal, but could you.

<unk> costs, all president performance before the deal pre school.

Thank you Dylan.

Switching gears to our new product category, we have made significant progress on our radiation hardened SRAM.

The Rad hard device continues to track completion of our internal cost locations by the end of this year.

Fred parts sales, however had been delayed the prime contractor awarded the program has made a decision to stay with the legacy design due to the aggressive time schedule of the programs.

On the radiation tolerant family. We are currently tracking to programs that we anticipate to close in the next two quarters.

Looking at our sales breakdown in the second quarter fiscal 2020 sales to Nokia were 5.3 million or 45.2% of revenue compared to 6.0 million or 46.6.

For set of revenue a year ago at 6 million or 45.7% of revenue in the prior quarter.

Military and defense sales were 23.4% of second quarter shipments compared to 16.4% a year ago and 21.0 per se in the prior quarter.

Some o'clock continues to be our best performing product category the sales of 63.5%.

Second quarter shipments compared to 66.4% last year at 67.9% in the preceding quarter.

I'd now like to hand, the call over to Doug. Doug Go ahead. Please thank you do Ya.

For the second quarter fiscal 2020 reported a net loss of $1.8 million or eight cents per diluted share.

Net revenues of 11.7 billion.

Compared to a net loss of $351000.

Two cents per diluted share.

Our net revenues of 12 point it really for the second quarter fiscal 20, let James.

At a net loss of $125000 for once <unk> per diluted share.

There's a 13 billion in the first quarter fiscal 2020.

Gross margin was 55.9% compared to 62.6% the prior year period.

63.3% from the per quarter.

Total operating expenses and the second quarter fiscal 2000 20.5 billion.

<unk> point Fourmillion of a second quarter fiscal 20 machines.

They put five late in the preceding quarter.

Research and development expenses were 5.8 billion.

<unk> to 5.8 million, but part of your period ended up from 5.6 million per quarter.

Selling general and administrative expenses were 2.7 billion.

The quarter after September 30, 20 MACI.

Prior to 2.7 billion at a part of your core.

Down sequentially from 2.9 billion to the previous quarters.

Second quarter fiscal 2020 operating loss was $1.9 billion.

Compared to $394000 from a year ago period, a $229000 per quarter.

Second quarter fiscal 2020 net loss included interest and other income of $210000.

Versus $55000.

Compared to $145000 and interest and other income.

Tax provision of $102000, let's say pretty year ago.

The preceding quarter net loss included interest and other income of $147000 that attach provision of $43000.

Total second quarter fiscal 2020.

Stock based compensation expense was $642000.

<unk> $552000 to the comparable quarter a year ago.

$651000 per quarter.

At September Thirtyth 20 MACI.

The company had 68.1 billion a cash cash equivalents short term investments at 4.8 million <unk> investments.

Compared to 61.8 million cash cash equivalents and short term investments $9 million.

It's worth <unk> loss and I believe the long term investments that fiscal year ended March 31st 20 about too.

Yeah, trimming third quarter fiscal 2020.

Our current expectations for <unk> original <unk> point 7 billion to 10.7 billion.

Gross margin of approximately 60% 62%.

Operator at this point well open the call to Q1 day.

Thank you.

I would like to ask a question. Please signal by pressing star one and your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your single to reach our equipment.

Again press Star one ask the question well pause for just a moment to allow everyone an opportunity to signal for questions.

Yes, or no questions at this time I'd like to turn the call back to you for additional remarks, Oh pardon me, we do have a question.

From our <unk> She's German have Needham company. Please go ahead.

Hey, guys. Thank you for taking my question.

So first want to start off with the delay how can you provide a bit more color on does and.

Yes, when won't be the timeline now for the delivery of the product and how can we be shared that.

No more delays in the future. Thank you.

I'm, assuming you're talking about the ration Horton product correct correct.

So the.

There's multiple entities involved and what I mean is the prime contractor who is ultimately responsible.

For the.

Shipments or the delivery of of the assets.

I made the decision so they that part of the program that weren't is actually with the stub contractor. It's actually a also a prime contractor, but in this case, it's a sub.

The sub was pushing for our solution because obviously it gave the program a much higher performance.

At the end today, the the ultimate Prime contractor.

Was up against the wall for a schedule and what they ended up doing was any new products and it didn't affect just just say affected other companies as well all new products that hadn't been tests in space yet.

We're not allowed in the system and so they went with an old legacy design.

With that said what were what we need to do is continue with our qualification, which I mentioned will be completed at the end. This year and then we need to push for some heritage, which is getting into space. So that when the next deployment of the program gets put in place we can be part of it as far as the timing unclear.

It would be sometime in calendar 2020.

Okay. Thank you that that makes sense.

Yeah, when it comes to <unk>.

Cooperation with the Weisman Institute.

Hi, there has that been say going into something larger how is your cooperation of them being then going.

Ah why so much help us up to a to identify Oh, you for medicus, a viable market for us and we do with them on sale.

We have as.

We have a couple of though we're making me to implement the old but.

The win today.

Okay, So what that.

That's a that's a help a tremendous off almost amongst all capability and so I.

I assume farmed out marketing point of view a week goes who was a minute we can.

Good didn't touch who is a big belt.

So do you go company and is part of what marketing can pin according to that market space.

That makes sense and when it comes to the expected contribution of the hard and products in 2020, what would you be just for modeling purposes, what would be reasonable estimate.

During the do it.

Hard to say, we're trying to get a feel for that now because we're trying to understand when the next release would be so I don't want to put a number out there yet until I feel comfortable with it so I'm trying to get both a number and more of a timeframe. Because this is all fairly new news.

So I at this point I'm going to hold up before I give you give you a number.

Okay makes sense and a one more question just.

With regard to aid view.

When it comes to modeling that for 2020, well can you say.

Calendar years like.

No I think that Ah Tony you can do you will most likely will be Oh, you know that benchmarking and all demonstrating the okay, but really due to the market.

Okay. So you Oak you are more like Oh, I think any volume you will be or you have you also owing to simply basis. Okay. I think it does seem to be from holding will come up more likely that Tony you can do you want to be.

So we've had customers have already.

I mentioned that they would like to buy the bourses evaluation and for the testing internally. So we will be selling individual boards for those purposes for basically trial kind of public or trial kind of testing.

Hard to predict when the actual production will kick in.

Thank you yeah, that's all from me today. Thanks.

Im sorry.

Our next question comes from Kurt Karen than men, Karen managing of Carl M. Henning. Please go ahead.

Hi, guys when will we get something.

And can you put some color on what you're seeing with your testing that you've got now you said by the end of the year, you'll have some or what are you seeing now on a I'm talking on the P. you and then or will we get released in the next month or two on how that's tracking with your other testing.

Yeah. So just I mentioned earlier, we the president organizing the weekend.

Pretty much a company all the benchmark, but the right now we are we still expecting all fully functional city can coming back so.

Oh the benchmark we are doing right now is a is that we use all you need show city can which steel bucket, but even with a the city can always about asking the we can see.

So you could even game Hooman thing I would say a independence.

Pencil fix or whether the existing solution.

But.

To put the you know that can be Cumbria, benchmark lumber and Oh.

Thing we bid up.

40 back until we see that the deal city couldn't it.

Took them on say all capability.

[laughter], otherwise, we don't want to poverty the how big.

And then Oh.

Oh, we had would change alumbera again.

But anyway, you know Oh.

It doesn't really seem to go we have a much bigger solution, although it may lead to better than fiber solution already.

Today.

Incurred and to add to that besides the debut itself. We're also putting them on boards in the <unk>. The first boards were doing I'm now isn't off the shelf the P.G. Board and we've created a daughter card for it and that has limitations on performance on that off the shelf port we have designed our own.

Custom board, which would be the one that we would use in production.

We do have samples of that kind of.

On board in hand, now and we're going through a deep a process. So Oh you know we also have to take down into consideration on the benchmarking, what we released to the public because as Leland said, we don't we want to make sure. We show the best numbers the numbers on the off the shelf Board. The performance is limited because of the board it's still very good.

Improvement over current solutions, but as far as what we're going to produce a we're gonna decided internally, but we may hold off to release the full.

Benchmarks base off of the production board.

So that wouldn't be this year.

They would it wouldn't be if it's not issued it would spill into early next year. Yeah. We still talk about the made this a little DC I know Ddics <unk> right.

This is not very far away.

So are you took down right are you testing your second silicon or you're testing third silicon is that where you're waiting or you're using second silicon with the board that you're making and that's kind of been a little bit of Italy.

No no to fix the well [laughter].

To make this a to get the more concrete lumber picture than we have a city couldn't way above the cost the pool and we also have a software or not.

Right now we are taking those the Oh see Oh, So you pass so I figured the flow closer to pull we probably will come over before in the second so you can but we saw the production bull.

Okay. So go up your faith first phase <unk> data and then on calls I mean, you want today that will come over Lisa.

So he can the so thinking well get back you know and quota. So are you a bobby.

More like a end of this quarter that we can get that get the pop or that they that publish.

Okay. So what are you having your because there's a couple of things timelines what are you having the training at the office, because you're saying that January or so you'll be having it for customers. The your board with the chip and then you're saying you're on schedule for similarity search training at though.

Headquarters when is that.

Going to take place.

So the the training we're going to be doing an internal run through and beginning of November and what we're targeting for the customers was either going to be the last week in November or the beginning of December its dependent also on on the folks that were having in the first training so we'll be using.

Obviously, the the off the shelf board for for that which is gonna be fine for the training I mean again for the benchmarking, we don't want to have the performance limitations of the off the shelf board, but for training and workshops that board is fine. So so that you will see or watch.

Let's say, we'll see but we'll have the the workshops sometime like I said best case would be an in November but it looks it's looking like the first or second week of December right now.

And how many parties or interest expressed interest in that I think it was a handful a few months ago has that increased or how is the.

How's that looking.

Yeah, it's more than a handful so well.

On the room that we're going to be doing the training in holds 32 and it'll it'll probably have a.

Mostly capacity.

Okay.

And I guess I would go back in queue, but I'm not sure if there's anyone waiting so I apologize if you want they can do that but.

Facial recognition is something recently that was on in the news that there are some areas that it doesn't work very well.

Have you gotten any indication that your chip may be able to do better for facial recognition Detroit comes to mind, there was a hullabaloo with the Detroit police Chief and.

You know the accuracy of off the face recognition software.

Do you have any commentary around that because I think that was an area you were looking at or is it too early to tell.

So we do have a partner in that space that we're working with kind of like a wise men for the Cheminformatics.

And right now what we've done is we actually haven't we've done a quick demo on our first silicon, which as you. All know was very buggy, we haven't done a demo with them on the second silicon.

What we have done no is actually use some of our algorithms on their current hardware platforms to show that not only do we have.

Again, the upcoming hardware, which will show them, but we also have a very strong software solution as well. So we have done a demo base off of our algorithms, which impressed them.

So we're at a point now where were shortly gonna be showing them a demo on the second silicon, but we haven't gotten into the level of detail that you're talking about Oh, you know how does that improved accuracy certainly they haven't accuracy target and they have a performance target and we certainly feel like we're going to hit both of them.

Very easily.

Okay and then.

Can you just talk about quickly Gemini too. So Gemini one is one board one chip what would Germany too.

Do and then what's what's the magnitude difference.

Cumin had poor okay first of all we Oh God is this a country, where we're going to so we have a lot a million Copa going along the way. So we're seeing a wheel we can be a telephone those can be improved whats I'm into city.

Probably more like a little don't make any do.

And of course, we can do that better integration that we see a minute who.

Another Jimmy that when we have a if you geos all interface.

Jimmy I to integrate that so you know assess another hold Omega me to the cost improvement.

So I think Jim and I to fund the cost be performance calls point of view you will be.

Probably a couple don't make any do better than the jimena, one, but oh close the schedule I. So hopefully I give me not one that we can.

Just obviously, the Marqibo vision, and and Jim and I too much better cost performance apart.

Okay would you say you have proved out concept I mean, that's kind of what your goal was with Gemini one do you feel that youve proof of concept or is it still too early.

That's working I mean, even though we're using the German I too is that much of it up caught up by the Jim you know one compared to a so hard to solution or in the market.

Well, let's call them even into up enough I was just what was your older. So even though Jim not one that yourself, he's a reality, but loosening up all that.

<unk>.

So so hope what do you want them onto the capability and and establish a good every night low math.

The customer.

And so we have done some benchmarking and again, it's on the limited Board limited off the shelf MPG bar. So we're not releasing those numbers, but the benchmarking does show that yes.

Our technology and architecture is unique and certainly has much better performance and that's not just on a on a pure performer. So would also on the power side. The power side, we are much lower power, which is something that's also important to this market space. So so the answer is yes, we do feel like we've proven that we just had.

Been released those benchmarks, yet just like as I mentioned, because we're waiting to do it with our production board, which is not limited and performance.

Okay fair enough finally, or will you be getting a website soon that matches the new technologies. It's.

Not really doing that at this point do you have something in the works that can be more applicable to what you're actually doing.

I do know we're going through some upgrades to the web site now I don't have all those details, but there will be some changes coming.

Okay, Yeah, certainly it doesn't really do much for the <unk> or for Gemini, which I think it certainly should I saw you got a new marketing person in your board and certainly there's.

Lots of opportunity with the web site for improvement to more show more about what you know where you're kind of going but okay. Thanks.

Appreciate it.

Thanks Kurt.

Our next question comes from Jeff Bernstein of Cowen. Please go ahead.

Yeah, Hi, guys I, just wanted to get an update on a year Nokia outlook.

So Nokia this this quarter will be down, which also explains why our quarter will be down a we've received the forecast for them. They usually give us a 12 month or rolling forecast and for the next two quarters I'm is really what's I guess solid so the next two quarters, which would be the.

The calendar first in calendar second quarter of 2025, it looks like it's going back to the normal run rate. So so they have a forecast that this quarter would be down and that will be returning to normal run rates and first and second quarter of next year.

Okay, all right that's great. Thanks very much.

Hi, Jeff.

Our next question comes from Shiran <unk> private Investor. Please go ahead.

Hi, good questions like I'd be a tiny.

So it's going to be when they.

Planning and then I'll piece that is going to replace make you can Ah Ah hey, anyone who's can play online by using mainly been you can have somebody shop cloud out somewhere in a anyone can paid I would just gonna be yes.

It will be both so we are the workshop will be a hands on workshop, but we understand the limitations of attendance. So I can't tell you. If the first workshop will be through the cloud or not but certainly I'm not not too long down the road, we will be having train that would also be cloud based.

And I wonder what are the softness listener talking to what they did want to open source software. They take Oh, we do have <unk>.

So the softer its its libraries.

More than specifically for device and depending on application you as as Lynn mentioned earlier it can be found a very low level all the way through the Python. So it's certainly gets more library and algorithm based.

And that is part of the workshops <unk>.

I'm sorry, that's so thatll be part of workshop choose to train folks on how they can write their own library, specifically for the device.

Well you mentioned that I I mean, that's off the back as you have aqua, calling them, even though they kinda talk I mean, even with the Chicago right. So you're going to be weapons sourcing to talk then it is gonna be.

Solution from your side.

It's a bicycle.

<unk>.

Yeah. So that just so the example, I gave was an algorithm it wasn't the library. So the libraries that we have or specific for for the P. you slice Gemini Ah. So those cannot be used a separate hardware platform. The algorithm. However could be and that's that was so that's a different it's not apples to apples as far as the the saw.

For a package.

Have a package that's that's deliverable with the device.

But as I mentioned it you know, it's it's not going to have every possible library every possible algorithm.

But we can show folks how to write their own.

Okay.

And what about going for the market Oh, what do you have a piece about how do you want to be cloud solution like what exactly would affect in Europe , yet and as you well what do they like Oh my could decide to do.

It would be a marketing customer driven so there are going to be folks, they're going to what an on prem hardware solution and they're going to be folks that are going to be going through the cloud. So it'll be it'll be a combination depending on.

The customer and the and the market.

Okay.

Thank you that's going to.

Welcome.

Our next question comes from current Karen Man. It is <unk> M. Henning. Please go ahead.

Like you haven't had enough [laughter] I forgot what collaborations do you see any collaborations with other larger companies is it too early you know meeting someone that has a large I T department.

And your hardware.

Can work together and do you see any service revenue opportunities as you're kind of starting to engage.

So yes. The answer is yes that the collaboration that were actually focusing on initially isn't probably what you're you're talking too. So we're looking to do some collaboration more right now and are in the Cheminformatics you know as we mentioned Wiseman Institute with their solution right now.

They're using software packages specifically for this market. So we're working with there's a couple known folks in those markets that we're starting to work with now to make sure that we can kind of integrating and collaborate with Dan what you're talking about I mean, we've started having internal discussions about that but it's way too soon.

Talk about.

You know what collaboration we may do as far as a data center.

Type of approach.

Okay, great. Thank you.

Thanks Kurt.

[noise]. It appears there are no further questions at this time I'd like to turn the conference back to you for any additional remarks.

Thank you have what's your annulus, we look forward to speak with you again, when we do for all silk with a physical whose oftentimes you do so.

Thank you.

This concludes today's call. Thank you for your participation you may now disconnect.