Q1 2023 GSI Technology Inc Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to GSI Technology's first quarter fiscal 'twenty 'twenty three 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 question and answer.

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 GSI technology that involve risks.

Things that could cause actual results to differ materially from those anticipated.

And uncertainties are described in the company's Form 10-K filed with the Securities and Exchange Commission. Additionally, I've also been asked advice you that this conference call is being recorded today July 28, 2022 at the request of GSI technology.

Hosting the call today, it's really linked to the company's chairman President and Chief Executive Officer with him are Douglas Carroll, Chief Financial Officer, and D day, if they're if ice president herself 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 2000 tons through the first quarter financial results.

Our legacy <unk> business with stable revenue and cash generation.

Continues to fund all Apu hardware and software R&D.

In the first quarter or physical 2023.

We did even though year over year increase of 12%.

Gross profit on.

This revenue growth.

Our gross margin.

<unk> two.

So cheap to person what's related to the product mix in the quarter.

But also we saw would reduce our operating loss from the same quarter a year ago.

And narrowed our net loss for the first quarter.

And end of the quarter, we had cash cash equivalents and short term investments.

41 $5 million.

The foundation provided by all historical Ism business.

So post the next phase of growth a GSI with the Apu business.

We have a further growth opportunities for all radiation hardened and radiation totaled one person caught us.

We are expecting to receive isn't.

Really the issue happened, it's an older from the prime contractor in the June quarter.

However, there has been a delay due to a request for additional specification review.

Now it gets older the ship in the second quarter of physical year 2023.

Didier will provide more detail on this amongst women in his comments.

The team continued to advance a few opportunities on several fronts.

We expect to launch search and AI all source platform to be available for all of our users this quarter.

To address a growing segment of customers.

In call Omi.

The sauce platform is delivered as a subscription service the lungs GSI service, we saw neither pool.

Search and AI a salary you lost your search.

And the open search workload.

Here's the push pull up I said economic solution for piece of news skilled into large capacity <unk>.

Including BD in fact, the data says without losing acreage.

Search and thought he also oversaw stricter search.

So by adding high speak a kudos soc of large banks or large text.

Image video and audio database.

The Python use a simple API integration into our customers' work for.

Enabling rapid deployment and to use.

The social market used to gradually growing.

As evidenced by the success and the growth over the last year to come.

Philip its users deep enhanced search capabilities with real time analysis and visualization.

It's a powerful high voltage crews with the ability to run the meeting clear do simultaneously.

Walking with a hungry or few even big data table.

Wind speeds are crucial and growing D R.

All source offering can provide increased speed and just get a BTT without losing accuracy.

We are excited about making searching tore yeah generally available to all customers who she is currently scheduled to occur by the end of a carry into 2022.

In July .

We released the first version of the full stack comparative for the if you Potter.

Called a couple of it.

Do you have to do this is a combination of 18 months of April .

Create a high efficiency ill Python.

Comparator, both development of course will host processor.

Deposits.

And the Apu processing Murray.

This breakthrough development, Chris ill person, which provide the familiarity and the programming environment benefit all Python with the speed of XI.

Two the development of real time Big data applications supported by the Apu.

The cowboy comparator currently suppose low labor library cool.

And the intermediate development.

Oh did you Brady.

Although recent acceleration.

He is available to select.

Select customers and had shifted to companies that's the worst being used internally to microwave previous she library within inches of GSI.

Well the Apu.

Yes that will increase our vacation dive already my question to cover that.

The next closest.

We currently plan to add convolution Keith.

He can you meet your processing side and the general higher Labor lubrication co development by mid calendar 2023.

Currently we have a numerous early stage apu projects. They are in the initial discussion phases.

Several of the large opportunities are we used to do contact.

The loss from our first course of wind you know more second challenge.

In that challenge all software performed before this.

And the most accurate.

And under diverse lighting conditions using image from real time, HD video Soc from moving through them.

This capability has many applications in the large global security market.

Using all means ODM defense business contacts we are leveraging the coach count.

She has brought with GSI.

In addition, one of the more sick children just sponsors what's the Mirage is PQ and.

And <unk> committed to promote.

The economy grows between Israel and the U S.

One function of the <unk> used to for city type piece of its development.

And also do is all we have been mixed several variable new connection.

Engaging with to do companies to discuss the Gemini Praful.

Okay.

Another I'll come over the mosaic challenge was the U K.

The scope of our existing stopped project with the outhouse Slash Moffitt.

This project da Vinci, and we are preparing for the Pheno integrations.

The P O. She was the Alta is funding a SAR image processing system.

Based on them all if your technology.

We currently anticipating shipping.

Shipping three Apu Sogou with our two systems U S pool, Uinta sober to Rialto by mid calendar 2023.

But he phones from Rialto are being used to develop <unk> goosey perpetual license over the fastback projection uncle reasons.

These are grim the recently I'll talk where large yes, I had to fill a source system Prada continue the other reason.

We intend to pursue the entire stock market with these products.

In physical year 2022, we increased customer engagement for the Apu.

And make contact in new market segments.

We are in the early stage of walking.

Numerous P O she's pegged.

Take two photos all engagement.

Ian physical year 2023.

We start building the team would you need to initiate Gemini outreach and manage through the process of moving customers through the pipeline from proof of concept.

Two design win and should put us.

We have a roadmap for the Apu and the next generation Ova Gemini used to own track.

The design of a Gemini two hasn't been finalized and we are we are at the final crystal law they off stage.

We are on target for taking all at calendar year end.

Jim and I too is the highly integrated part of the overall square improvement with Gemini one.

You will improve the speed performance by eight times.

Here's the eight times or more than 10 million embedded memory.

We reduced the cost one codell well.

The carnival.

Great.

The addressable market.

We currently have in the first city can pick a union what does Jimmy I too.

That carried into Q2 looks to you.

Yeah.

G S actually a holder has been asking for accountability and transparency.

I want to assure our shareholders that I understand your frustration.

And also the largest shareholder I feel that myself.

Many people on my team are also large shareholders song, but who have a walk with me for Texas.

I have a sense of urgency to deliver on our goals and create a market for the Apu that isn't always possible.

We welcome open dialogue with all shareholders.

The value of your input.

Our intention is to make physical year 2010, you see that coming for them for this country by building a meaningful pipeline for the Apu.

In closing new business for our groundbreaking technology.

No I will hand, the call over to Dee, Dee, who would discuss the all pieces of news to performance food critic.

Critical ahead Didier.

Thank you Lee Lean, let me start with an update on our radiation hardened our Rad hard SRAM business, we shipped four prototypes to three separate Rad hard customers in the last fiscal year. All the customers are currently testing these systems that require chips to withstand harsh conditions as.

Leanne mentioned, we expected another Rad hard prototype order in the first fiscal quarter. The release of the purchase order from this prime contractor was delayed to this current quarter.

We have the parts ready to ship. So once we have the order the parts will ship.

This prototype order could potentially be the same revenue magnitude of all of our radiation hardened orders in the last fiscal year.

As a reminder, rad hard as a high growth profit product for us.

And if a few of these prototypes moving to production it could add incrementally to fiscal years 2023, and 2020 for revenues.

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

In the first fiscal I'm, sorry in the first quarter of fiscal 2023 sales to Nokia were $1 3 million or 14, 7% of net revenues compared to $3 8 million or 42% of net revenues in the same period, a year ago and $2.1 million or 23, 1% of net revenues in the prior quarter.

First quarter fiscal 2022 net revenues included orders for buffer stock ship to Nokia amounting to approximately 1.0 million that were made in anticipation of a continued market tightness.

Military defense sales were 22, 3% of first quarter shipments compared to 20 point know percent of shipments in the comparable period, a year ago and 22.3% of shipments in the prior quarter.

So I'm quite sales were 44, 8% of first quarter shipments compared to 63.6 in the first quarter of fiscal 2022 and $47 six for the previous quarter.

Lastly, I want to comment on the current supply chain situation. We currently move the majority of our chip substrate suppliers out of China last year to limit the potential delays like any COVID-19 related lockdowns in China could cause we are actively addressing supply chain variances that could potentially impact our order fulfillment, but the situation remains.

Overall, most of the cost increases from our suppliers were successfully passed on to our customers in December of 2021.

We are closely watching costs and evaluating if we need to change prices in the future.

GSI in the industry as a whole are constrained by the availability of F. P. G. As since we use FPGA is on our leader boards, we could potentially be constrained if we receive a large order for an apu platform.

So we are still confident that we can fulfill orders that we have in hand and for the upcoming quarters far SRAM.

Alright, SRAM customers and are optimistic that we have sufficient capacity to meet this demand.

I'd now like to turn the call over to Doug go ahead, Doug.

Thank you D D a.

<unk> reported a net loss of $4 million or 16 cents per diluted share.

Revenue at <unk> 9 million for the first quarter of fiscal 'twenty to 'twenty three.

Compared to a net loss of $4 2 million or 17 cents per diluted share.

Net revenues of $8 8 million in the first quarter of fiscal 2022.

And a net loss of $3 million or trust us per diluted share on net revenues of $8 7 million.

For the fourth quarter of fiscal 2022.

Gross margin in the first quarter of fiscal 'twenty to 'twenty, three with 62% compared to 54, 4% in the prior year quarter at 58, 6% for the preceding fourth quarter.

Improvement in gross margin was primarily due to changes in product mix sold in the quarter compared to prior periods.

Total operating expenses in the first quarter of fiscal 'twenty 'twenty three for $9 3 million compared to 8.9.

<unk> nine 1 billion and.

First quarter fiscal 2022.

$1 billion from the prior quarter.

Research and development expenses were $6 6 million compared to $6 1 billion in the prior year period, and $6 5 million the prior year.

Quarter.

Selling general and administrative expenses were $2 7 million in the quarter ended June 32022, compared to $3 million for the previous quarter and one 5 billion.

In the previous quarter.

Fiscal first quarter fiscal 'twenty to 'twenty three operating loss was $3 9 million compared to $4 4 million from the prior year period, and two 9 million in the prior quarter.

First quarter fiscal 2023 net loss included interest and other expense of $26000.

And a tax provision of $60000.

Interest and other expense of $20000 and a tax benefit of $172000 in the prior year.

In the preceding fourth quarter net loss included interest and other expense of $47000 and a tax provision of $21000.

Total first quarter pretax stock based compensation expense was $638000 compared to $823000 in.

In the comparable quarter, a year ago and $714000 from the prior quarter.

At June 32022.

The company had $41 5 billion of cash cash equivalents and short term investments.

$75000 and long term investments.

Compared to $44 million of cash cash equivalents and short term investments.

At $3 3 million in long term investments at March 31, 2022.

Working capital was $44 8 million as of June 32022.

Prior to 45.

March 31st 2022 with no debt.

As of June 32022, stockholder Saturday was 61 3 million compared to $64 5 million.

Just as of the fiscal year ended March 31 2022.

Our current expectations for the second fiscal quarter, our net revenues in the range of $8 5 billion to $9 5 million.

With gross margin of approximately 61% to 63%.

We maintain an attractive balance sheet with a surplus of cash and no debt.

Operator at this point, we will open the call to Q&A.

At this time, we'll be conducting a question and answer session. 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. You May press star two if he would like to remove your question from the queue.

Participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Our first question is from Luke.

Please proceed with your question.

Hi, that's yeah.

Uh huh.

I've got some questions about the transition Gemini one.

Sure.

I'm wondering if there'll be any inefficiencies with the software and retention from our software attendance Gemini one so.

Yeah, well you all currently been recording on building the.

The software foundation for that was that has to be heated for Gemini two.

And.

And your hardware application well servers have to be replaced from.

For the customers that currently have concepts or the way you're going to be seeing between now and it's the Gemini two.

Yes, we need to make wish Mike with the software.

Refunds, Jimmy and I want to Gemini two.

But the good thing is though we already have a learning curve. So we are enthused.

It appears that they will be much smoother.

Making the making this off with my questions on the phone the ones and twos.

Okay, so you'd be using similar template.

Be able to retain some of that some of the.

Integral code there.

Well.

I think that the learning curve will be there and but I think that the detailed implementation would be called the.

The Sofia is different so you have some inflammation implementation it needs to be done to you now.

To fully utilize the Gemini two.

Mhm.

Okay.

Yeah, I really appreciate the transparency you mentioned at all.

Your outlook and development updates.

Certainly appreciate it and I think that you've got a lot of traction.

So yeah, we we shared with you then.

These exciting developments yeah, we're a.

Or at least I can say that another tier.

Really interested.

Have you ever thought about releasing a roadmap for the Gemini project posted on your website publicly.

Are you talking about the Jimmy and I will talk about the amount of two.

Yeah comprehensively the overall Gemini project.

Oh, yes, there's one.

Yeah, I guess, we don't have at this moment, we probably can look into it.

Okay.

Okay.

Conveniently.

Producible.

I think there would be nice for yeah, that's for networking purposes.

Yes, the Gemini one mention that the production might have limitation relative to past you produced is S. E T O.

Yeah, what kind of scalability you do have for the initial alpha customer base with elastic search and you imagine being saturated.

Yeah with that.

Or do you open up to the public you'll be able to bring up.

Yeah larger customers and I'm not sure exactly like we're thinking about organization.

Snowflake or even.

EBITDA as providers have proprietary.

Processing them.

Like Rackspace for MTBE.

Yeah Yeah.

Companies that are using them.

Our products would be.

We're able to what are they able to access from you all first slots.

So let me so let me answer at the beginning of that question. So we have already some servers installed in our Sunnyvale facility.

Our Israeli facility and also a third party.

Core site, which is the core site location was installed.

Installed for the upcoming open search engagement that we have and it can also be used for elastic search. So those have those that hardware has already been installed we have additional hardware in house, along with the raw components, the raw components being at par.

<unk> to build up a certain amount we have certainly FPGA is on order.

It's just I guess, the I guess the comment in the script was that we don't have unlimited.

Material on hand at this point I mean, we do have to you know.

Deal with the same lead time issues that everybody else in the market space.

These parts. So we certainly have enough for alpha beta customers for sure and even adding more to our data centers. It's just you know in case something very large were to break it would and we certainly have some lead time issues supplying that hardware that's really what the comment was for.

Yeah.

Okay and do you have any information about what the model will be for revenue without elastic search that initial searching them rollout will it be subscription or all of it.

Yeah, we're still working on that so we haven't released any revenue forecast at this point.

Okay.

My last question is about the chips.

Actually I did have one other kind of clarification, but the chips that are.

Moving through Congress right now you are anticipating able to benefit from any of that make the development incentives or development.

Yeah, I think I've seen the we don't see the direct benefit of that but the overall.

It would be more funding to the industry and more funding to the <unk> project and we are we are actively looking for S. Yeah. So indirectly I think <unk> will be paying for all of us.

Uh huh.

Question.

Yeah Yeah.

I'm kind of more the demand side.

They're all supply side.

Yeah.

Okay, and then I was wondering I didn't catch your name.

U S Collaborates and organization.

Helping to facilitate some of your ultimate.

I'm, sorry can you repeat that where you're cutting out it's hard for us to understand.

Yep.

Yeah. It was mentioned that there is Israel collaboration facilitation organization.

We're working with and I didn't catch the name of it.

Yeah, its Mirage Institute.

So the the last challenge that we participated in the mosaic challenge was sponsored by a few entities D O D being wind my fab being another and then the the Mirage Institute.

And so the Mirage Institute.

Cause of our win in that.

The the VP of the division of our Apu out of Israel was invited to a two weeks seminar with other Mirage Institute members and Oh, you opened up access to a lot of very high level meetings with very influential customers that could be using apu and so it's certainly.

Early in that process because the Mirage.

Competition was just this year, but we've already seen some.

Some movement on a potential P. O sees based off of that Mirage Institute relationship we have.

Excellent.

Yeah. Thank you are retaining.

These relationships.

No not at all.

That's all my questions I really appreciate your congratulations on development.

Thanks Luke.

Okay.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

It appears that there are no more questions at this time I would like to now turn the call back over to Mr. Sheehan for.

Closing remarks.

Thank you all for joining US we look forward to speaking with you again, when we report all second quarter physical 2020 sued ease off thank you.

This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.

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