Q3 2022 GSI Technology Inc Earnings Call

[music].

Ladies and gentlemen, thank you for standing by.

Welcome to GSI Technology's third quarter fiscal 2022 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 in entering the queue for the Q&A.

Before we begin today's call. The company has requested that I read the following safe Harbor statement.

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

These risks and uncertainties are described in the company's Form 10-K filed with the Securities and Exchange Commission.

Additionally, I have also been asked to advise you that this conference call is being recorded today January 27th 2022 at the request of GSI technology.

Hosting the call today is Lee lean <unk>, the company's chairman President and Chief Executive Officer with him are Douglas Shirley Chief Financial Officer, and DDA was there.

Vice President of sales I would now like to turn the conference over to Mr. Hu. Please go ahead Sir.

Good afternoon, and thank you for joining us to review all physical so quarter 2022 financial results.

Also a quarter revenue grew year over year, but 19% due to increased older or some customer base.

Including label into Telecom.

Military and the defense, especially with automotive.

Medical.

In tests that make them in sectors.

The increase in orders from other customers offset the lower orders from Nokia in the quarter.

Gross margin improved by 800 basis points year over year.

Reflecting our ability to manage our near term supply chain challenges and increased costs.

I'll, let last year.

Year over year by 12% and we.

We ended the quarter with $48 million of cash.

Cash equivalents and the short taking Christmas.

We continue to prioritize the allocation of our capital.

R&D for the Apu.

Which includes the software.

And a T I D Goldman for Jimmy not one in the table for Gemini two.

The software development team.

Continue to expand our library of algorithms.

In the a b E.

We're all talking to application usage.

In February we plan to release, a comparator stack N.

<unk> will provide an overview of this in.

He's sections.

And in the Obamacare and the 2021.

Lone Star GSI was among the leaders in the building scale.

The U S labor search challenge.

We will encourage the disc all come through.

The results showed that.

The <unk> technology.

Software.

On par with the problem in the industry leaders in AI.

With a much broader resource GSI.

Tsi.

Contest such.

Contests teach us a lot about what we need to further develop and view.

And how we can improve our performance.

Congress like be a big game and the Martha Challenge I'll also effective way to lose GSS copper industry and with potential customers.

This contest followed at all to use capabilities and increase the awareness of all if a unique value proposition lastly.

Last year, our first class of weak.

In the Mafia Challenge you saw in our introduction.

Two I I slash Alta.

Who engage with GSI to develop saw imager processing wholesale roofing system, using the Apu and all software.

Yeah I'll tell you is funding the R&D to build south system based on a pea with technology.

When.

Exclusive perpetual license older fossil saw uncle loosen puccio Si to a large U S out to sell of sources, including dark losing to other customers.

Assuming that the P O. She is successful.

We'll deploy the system in volume.

The geoscience team continue to pursue a pipeline of customer engagement.

And the increase of our POC activity for the Apu.

In addition to alcohol soft project, we are in discussions with several organizations to engage in P. O. She well variety of use cases for social application. We are testing we are targeting.

All current he or she can get your moves in.

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Index and medical image and text.

Encrypted communication and natural language processing.

Upon contractor is interested in testing it both for military and defense applications and we have a government agency considering if you for object detection and the facial recognition.

We anticipate I anticipate that a portion of it is pure she well move to design wins and eventually production.

Okay.

A few years back once we had the Gemini one chip available for testing, we made a strategic decision to pursue search you still have the training and influence the market.

Well, they're already large well funded competitors.

The Apu performed significant better use social applications and.

We decided to take all resource to develop that market.

This has proven to be a good decision. So we are now seeing the Soc may ultimately be a large market.

We recognize that the Apu, who work very efficiently restart train the database to rapidly search and deliver results.

With low latency low power consumption and the scalable configuration.

Thanks Lucy.

One smaller footprint lowering the total cost of ownership.

Hey, Ben space really trip and reducing power consumption.

Key differentiator.

All of the Apu.

We remain committed to our strategy and dedicating all capital creep with the best technology for the rapidly growing Soc market.

Yeah.

So far I cheer them constraints continue to impact order fulfillment.

While there has been some improvement the situation remains fluid.

We had paso solve the price increase and have affected.

N D D times.

But we do not expect significant relief for.

This concern before the end of the year.

2022.

We have increased all operations focus.

One managing the supply chain to fulfill orders that we have in hand for the upcoming quarters Baku, a profile all outlook.

For the fourth quarter in the previous peak.

Could come in.

Do you see it will be a crucial year to proving all the feasibility of all ground breaking technology.

Our next important milestone is the reduce of the comparator stock in February .

Is to really reduce short ourselves with customer adoption of our groundbreaking technology. They can bulks low enterprise air capacity.

And the print that capacity capability to stem along so Atlas air the age.

We are in the early stages of engaging with the customer recognizes the apu potential for their applications.

The compiler stack.

She will help us grow all Patrick.

It is exciting.

Exciting time for GSI all team is focused to achieving all goes for current customer engagement, while continuing to build our pipeline new opportunities.

Now I will hand, the call over to Didier, who will discuss our business performance for them.

Please go ahead Didier.

Thank you Lee lean ethylene stated, we have new customer engagements in multiple applications ranging from ecommerce to military and defense for various use cases.

And our approach to the search market, we are pursuing opportunities that align with the applications. We feel the Apu is best suited right now our team is hitting the field and we fully expect that some of this will bear fruit.

Our approach to supporting these customer engagements depends on the end users' needs for Sun, we loaned them aboard to demo others have access to our Sunnyvale datacenter to run their models and then some have purchased some boards each of these engagements target unique market applications and the ultimate size of each opportunity may vary.

Since many are in the early stages of development. It is challenging to measure, but that said, they're all of sudden of sufficient size to merit allocating our resources.

Today, we are working with universities with unique applications with broad market opportunities and.

And we also have prime contractors that could eventually turn into large orders and a government agency evaluating for the Apu for border security. There's also an E Commerce company looking at the Apu for natural language processing.

You can see why we're excited about these engagements as they could potentially develop into customers in growth markets. Our.

Our objectives are to make the P. O sees as successful as possible for each entity expecting a portion of the move to design wins and eventually to production.

As part of the GSI developing a strategy for the AI and H P C or high performance computing acceleration markets. We will soon be releasing in Apu's compiler stack. This release will deliver the environment for software and AI developers to write full applications using C for our leader E and Lee to S. P.

See I E boards. The release will include example applications and training materials.

Where's that need a specific use cases algorithm can edit our large collection of vector library of functions and write their own AP or write their own Apu fragments and Python using our low level bellic stack product.

Achieving the Apu compilers check milestone should accelerate customer adoption and it's one of the most important steps in front of us to move the Apu to the next level.

As I said earlier the GSI team has been busy creating a P is for search workloads like image indexing object recognition natural language processing.

Well as H P C workloads in the enterprise and real time applications like SAR, a T R and signal classification at the edge.

We have documented that the Apu technology can offer enterprise AI.

Capacity.

The edge I'm, sorry, and in edge Standalone server in support of that migration.

The Apu compiler stack is a powerful tool for researchers and developers that promises to significantly expand the market applications for our non von Neumann processor.

To help build the pipeline GSI will introduce a series of training seminars to support the customization of our API for specific applications. The Apu technology is available and a pcie board for enterprise and edge server applications capable of searching tens of millions of vectors per board.

That form is highly scalable, allowing us to connect unlimited boards installed in servers.

The hardware capability can also function as a cloud based software as a service for open search and elastic search acceleration.

Once we launch the compiler stack, we plan to provide more detail in our press release.

Let me switch now to the customer and product breakdown for the third quarter.

In the third quarter of fiscal 2022 sales to Nokia were $1 9 million or 24% of revenues compared to $2 8 million or 42% of revenues in the same period, a year ago, and 1.9 or 23, 8% of net revenues in the prior quarter.

Military defense sales were 27, 1% of third quarter shipments compared to 26 point know percent of shipments in the comparable period, a year ago, and 27, 4% of shipments in the prior quarter.

Excuse me quite sales were 45% of third quarter shipments compared to 62% in the third quarter of fiscal 2021 and 52, 4% in the prior quarter.

In closing as Ilene mentioned, we have ongoing challenges with supply chain constraints with substrate lead times are more than a year.

Overall, the impact of increased wafer prices assembly labor costs rising substrate prices and expediting charges has led us to raise prices to all of our customers in December .

I'd now like to hand, the call over to Doug go ahead. Please thank you Didier.

We reported a net loss of $4.6 million or <unk> 19 cents per diluted share.

Revenues of a $1 billion for the third quarter of fiscal 2022.

Compared to a net loss of $5 $2 million or 22 cents per diluted share.

Revenues of $6 $8 million for the third quarter of fiscal 2021 .

And a net loss of $4.6 million or that kicks us per diluted share.

Net revenues of $7 $8 million for the second quarter of fiscal 2022 .

Gross margin was 55, 3% compared to 47, 3%.

In the prior year period, and 53, 6% in the preceding second quarter.

The changes in gross margin were primarily due to changes in product mix sold the three periods.

Total operating expenses in the third quarter of fiscal 'twenty 'twenty 249 billion.

Compared to April 3 million in the third quarter of fiscal 2021 .

And $8 7 million from the prior quarter.

Research and development expenses were $6 2 million compared to $5 7 million.

Prior year period, and five 9 million in the prior quarter.

Selling general and administration administrative expenses or <unk>.

$2 million in the second quarter ended December 31, 2021 .

Compared to $2 6 million in the prior year quarter.

And $2 8 million in the previous quarter.

Third quarter fiscal 2022 operating loss was $4 $5 million.

Compared to $5 2 million in the prior year period at four 5 million from the prior quarter.

Third quarter fiscal 2022 net loss included interest and other expense of $15000 and a tax provision of $64000.

Compared to $25000 net interest and other income.

And a tax provision of $90000 for the same period a year ago.

In the preceding second quarter net loss included interest and other expense of $8000.

Cash provision of $42000.

Total third quarter pretax stock based compensation expense was $740000.

Compared to $693 in the comparable quarter a year ago.

$716000 in the prior quarter.

At December 31st 2021, we had $48 $1 billion in cash cash equivalents and short term investments.

A $3 $4 million of long term investments.

Compared to $54 million in cash cash equivalents and short term investments and.

$5 $8 million in long term investments at March 31, 2021 .

With no debt working capital was 49 9 million.

At December 31, 2021.

Versus 56 million at March 31st 2021.

As of December 31, 2021, stockholders' equity was $66 $8 million.

Compared to $75 6 million.

And.

For fiscal year March 31, 2021 .

Supply chain constraints have impacted our ability to fill our or all of our orders.

Or there has been some improvement the situation remains fluid and.

And we do not expect significant relief from these constraints before the end of calendar year 2022.

Given these constraints current expectations for the upcoming fiscal fourth quarter our.

Net revenues in a range of $7 $5 million $8 5 million.

Gross margin of approximately 54% to 56%.

Operator at this point, we'll open the call for Q&A.

Thank you at this time, we'll be conducting a question and answer session. If he would like to ask a question. Please press star one on your telephone keypad.

A confirmation tone will indicate that your line is in the question queue. You May press star two if he would like to remove your question from the queue.

If a person and for participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys.

Please while we poll for questions.

Our first question comes from the line of Jeff Bernstein with Cowen You May proceed with your question.

Yeah, Hi, guys.

In terms of the orders that you have not been able to fulfill or are those gone did those go to someone else or is that a backlog that's building up.

The majority of it is backlog the spilt up I mean, certainly some of them, where we have multiple sources.

May have gone with that said, it's not a it's a very small percentage of our business. The majority of it is sitting there and will be fulfilled later later.

Gotcha, Okay, and then can you just give us a quick update on the the Rad tolerant efforts.

Sure so the Rad tolerant.

We spoke in the past we've had some shipments out and in fact on some rad hard as well and so some of those we are in the protests stages, we're waiting for them to do their testing. It takes some amount of time, what we didnt discuss is in this quarter, we actually booked.

Another prototype for actually a Rad hard device. So we have a rad hard on the books now that will ship hopefully this quarter.

And again as for prototyping for satellite.

That will go into production in a couple of years. So you know where were starting to still see some prototyping there as we mentioned the paas. The Rad hard still is a bit of a challenge because some of the meetings, we still can't have but the Rad tolerant, we're still seeing certainly traction there.

Okay.

Okay, and then there was the issue of actually getting some of these parks into space before some people would look at using him where are we on getting a ride.

Right exactly so that's called heritage. So once you once you get heritage, which is proving that your parts working space. It certainly makes our job with most customers very easy in fact that we've had several customers have said that they're going to wait for heritage before they move forward are the sum of the parts that we shipped in I won't say summer.

Of last year. It was late summer maybe a.

Calendar third quarter, those we're gonna be our first pars they could get into space those are being put on the satellites being assembled now. So we're hoping it's launched sometime this year and we certainly don't have control when that happens.

We're following up with that customer often and right now it's some time in calendar 2022 that will be in space. If you recall that was a demo system for a possible constellation in the future, but that would give us our first heritage and we're hoping that this year.

Alright. Thanks.

Okay.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate that your line is in the question queue.

Yes.

Yes.

Okay. At this time I'm not seeing any more questions I'd like to pass it back over to Mr. Hu for closing remarks.

Thank you all for joining US we look forward to speaking with you again, when we do you pull all.

Fourth quarter and full year of physical 'twenty 'twenty. Two result, thank you.

Yes.

This concludes today's conference you may disconnect. Your lines at this time. Thank you for your participation and have a great day.

Okay.

Yeah.

Yeah.