Q3 2023 GSI Technology Inc Earnings Call
Greetings and welcome to the GSI Technology, Inc. Third quarter fiscal year 2023 results at this time all participants are in a listen only mode.
A brief question and answer session will follow the formal presentation if anyone.
Should require operator assistance during the conference. Please press star zero on your telephone keypad.
During this conference is being recorded it is now my pleasure to introduce your host Mr. Leland Hu, Chairman, President and Chief Executive Officer. Thank you. Mr. Shaw you may begin.
Yeah.
Okay.
Good afternoon, and thank you for joining us to review our.
Physical so quarter 2020 financial results.
Third quarter revenue of 44 meetings.
It was within guidance.
Sure.
Revenue growth was impacted this quarter, but also some outlook for the global economy.
Despite this we continue to see demand for some part of our interests in all radiation Houghton.
The radiation tolerant products.
Right customer order patterns.
Well right now.
It's across your issues are.
Related to economy external factors.
My changes that you can in.
In the market requirement as well.
Father.
Despite the lower revenues in the quarter.
Increased sales of higher margin part of these all in gross margin of 57, 5%.
Exceeding the high end Oh, Okay. This range.
Acquired research and development costs because sequentially.
We saw it increase you see already.
No.
Ms Tracy.
Hi, Rachel seafood in the label.
Quarterly adjustments to contingent consideration and the silver.
Two zero.
To ensure success.
Resource we've seen the company calls, we announced several cost reduction initiatives.
So you expect keep team took a comprehensive approach to identify and implement all it tends to be factoring in pesos.
Which including a thorough review of all expenses and ways to streamline process and improve operational efficiency.
We have two objectives.
With this strategy one to reduce our cash burn.
<unk> two along all resource.
<unk> develops and the Apu.
We are on track to achieve $7 million in savings.
Annualized basis.
A copy of the cost reductions.
These majors and right size, our operation increased has to be.
Men as you're spending to increase efficiency and focus our resources on advancing the profile or the Apu technologies.
Let me update you on where we are today with a few hardware and the software.
Our development team used to talk to tape out Gemini two in the first half of this calendar year.
Which of course is the oldest schedules to see the first spin.
But at least somewhat.
In that case, we could test is Jimmy and I too too early for us.
If everything goes. According me, we could have a second table to fixed but early this calendar year.
In parallel one so we have a chip that the software to use.
They will start developing the API and the library for Gemini to.
Keep in mind that it took six C spin to fix the old box Eaton to stimulate one and are forced to increase the U S. B.
Jim and I to ex memory density or would you have been at one and pass so dx cost performance improvement.
Gemini two can greatly enhance the arm market push you over if you take the apology.
Pull back further substantial savings empower extra bonus silver foolproof.
While enabling large scale real time search and Hp's you work rules.
Software for Gemini, one Easter Ariel Ariel.
Intense focus and that currently we have a full blown up T V M M Library.
We are poised to use by customers.
And one research Institute has been able to run their own library based on it.
For their part here.
Oh Gee, our ear library is to develop for salt applications and we have completed a POC pause you wish I, So actually I'll talk based on this.
Yeah, that's how I used to also evaluate your GPU solution to benchmark against if you will.
We can see some initial sales once the apu for four months equal been favorable.
In the meantime, we are marketing the source solution to other customers.
We have recently improved our G H.
And I would foresee minority key social application.
We are engaging with the logical fruition.
Yoshi applaud you.
For your own Prince Immunology search cause you they'll do class very high accuracy and low latency.
The improved the G. S. C O library is perfectly suited for this application.
One the compiler for them, we have a completed she comparator that customer are using to probe on if you with few cool.
We are in the process of completion ill ill person El Paso comparator.
We're a large customer to launch a P I.
Application in their library, even Tyson.
Ill pass that he's still you don't know us and will be released for general use heat unite.
Now I will handle the call over to Didier who will discuss our business performance.
Please go ahead D D.
Thank you Lee lean.
Let me switch now to customer and product breakdown for the third quarter.
In the third quarter of fiscal 2023 sales to Nokia were $1 3 million or 20.1% of net revenues compared to $1 9 million or 24 point or percent of revenues in the same period a year ago.
And $1 2 million or 13, 6% of net revenues in the prior quarter.
Military defense sales were 26, 2% of third quarter shipments compared to 27, 1% of shipments in the comparable period, a year ago, and 22, 4% of shipments in the prior quarter.
Sigma Quad sales were 45, 2% of third quarter shipments compared to 45% in the third quarter of fiscal 2022.
And 58, 1% in the prior quarter.
Regarding increased production costs were evaluating where we can pass on the increased wafer prices that TSMC announced last year, which became effective starting January of this year.
Jim in Hawaii hardware is no market ready, we have two board configurations, the leading E, which is in production and the leader as switches and SSD form factor board and is being finalized today.
In the third quarter, we shipped one media E bar to potential SAR customer and we shipped one leader E server to research Institute that will explore Gemini one foreign Crimson applications.
I'd now like to hand, the call over to Doug Doug Go ahead. Please.
Thank you Didier.
We reported a net loss of $4 million or 20 cents per diluted share.
Net revenues.
A $6 4 million for the third quarter of fiscal 2023.
Compared to a net loss of $4 6 million or 19 cents per diluted share on net revenues of $8 1 million for the third quarter of fiscal 'twenty to 'twenty two.
And a net loss of $3 2 million or 13 cents per diluted share on net revenues of $9 million for the second quarter of fiscal 'twenty two 'twenty three.
Gross margin was 57, 5% compared to 55, 3%.
Prior year period, and 62, 6% in the preceding second quarter.
The changes in gross margin were primarily due to changes in product mix sold in the three periods.
Total operating expenses in the third quarter of fiscal 2023 were $8 5 million.
To $9 million in the third quarter fiscal 2022.
And they'd put 8 million from the prior quarter.
Research and development expenses were $5 5 million compared to $6 2 million in the prior year period at $6 4 million in the prior quarter.
Selling general and administered and administrative expenses were $3 million.
For the quarter ended December 31st 2022, compared to $2 8 million in the prior year quarter and two point.
$4 million in the previous quarter.
Third quarter fiscal 2023 operating loss was $4 8 million.
Compared to $4 5 million in the prior year period.
Operating loss of $3 2 million in the prior quarter.
Third quarter fiscal 'twenty to 'twenty three net loss included interest and other income was $61000 in.
And a tax provision of $84000.
Compared to $15000 of net interest and other income.
A tax provision of $64000 for the same period a year ago.
In the preceding second quarter net loss included net interest and other income of $14000.
And a tax provision of $37000.
Total third quarter pretax stock based compensation expense was $654000.
$740000 in the comparable quarter, a year ago at $661000 in the prior quarter.
December 31 2022.
We had $335 2 million of cash cash equivalents and short term investments at $0 in long term investments.
Compared to $44 million in cash cash equivalents.
And short term investments of $3 3 million and long term investments at March 31 2022.
Working capital was $39 2 million as of December 31, 2022.
Versus 45 8 million.
At March 31, 2022 with no debt.
Stockholders' equity as of December 31, 2022 was $54 million compared to $64 5 million as of the fiscal year ended March 31 2022.
Regarding our outlook for the upcoming fiscal fourth quarter.
We anticipate net revenues in the range of $5 billion to $5 6 million.
With gross margin of approximately 49% to 51%.
Operator at this point, we'd like to open the call to Q&A.
Yes.
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One moment, please while we hold for questions.
Okay.
Okay.
Yeah.
Yeah.
Yeah.
Thank you and our first question will come from Kurt Chairman Dennis with Karl.
Please proceed with your question.
Hi, guys, what what are you thinking a cash burn looks like.
Maybe I'll kind of looking out this year with the revenues now being looking quite a bit lower.
Per quarter me well you know we were looking at we were looking at somewhere around 12 or $13 million a year and the cost cutting will save us about a $7 million a year or so.
Yeah.
It will be better off than we were a year ago I believe.
I mean, it's it's it can be like four or 5 million a quarter.
Oh no no no I think we'll probably be.
Something less than a 12 or 3 million 12 or $13 billion that we were previously saying whether here or there.
Is the is a sale leaseback and option for the building.
Or has that been looked into as you know.
It's something that we've looked at and that is something that we can consider for the future.
Okay.
Sounds good well good luck, hopefully hopefully something with the Apu comes comes through here in the next.
A few quarters for the for for a number one.
Yeah.
Great. Thank you Kurt.
Okay.
Yeah.
And our next question is from.
Who is a private investor. Please proceed with your question.
Hi.
Wondering if you all come across any new application ideas and just generally which are a few applications that you're most excited about.
And this kind of income so we were set up.
Yeah Okay.
I'm, sorry can you frame the question.
Oh, Yeah, I was going to clarify that maybe in the context of as you've all been exploring your technology in <unk>.
Marketing channels going to conferences like the buzzword the cockpit.
Just wondered if anything new has arisen or a light bulb is getting brighter.
Yeah.
Right. So right now we were focused on the Saar as Lee Lean mentioned, so that's we've done a POC and we've obtained some very nice algorithm to go along with our hardware. So you know the benchmarking we've done against Cpus and Gpus are.
Are very promising for us both on a performance level.
How're level and a form factor level, which is important.
Depending on where they deploy some of these systems and so so that's one area that we've started wasn't that started but we've been contacting all the Saar players both on a commercial level and on a government level.
As far as Oh, I'm, sorry, and the other market is the fastest vector search is something that we've already put in a plug in and we've talked about in the past.
Since then there are a few other applications that we've had customers come to us with one of them. We I mentioned in my in my script, which was one of the board's our systems I should say it was a server that we shipped last quarter was for encryption application.
And there are a few others that have recently come up I'm, a little early to talk about.
About them, just because we haven't gone through.
The process of seeing what our advantages yet, but there are certainly no lack of different applications for for the Gemini chip.
That's excellent yeah, that's really good to hear you're going be able to move forward confidently they're.
Checking off more and more boxes.
Okay, well that's kind of.
Yeah, I think discharge is one of the other questions because I know your Oh.
I guess, the I'll just throw it out there as a general prospect not necessarily for the near term near term, but I saw that Amazon Prime Air launched their first.
Test sites for their delivery drone program and Omega advisor with the original leader of that program.
Yeah. So just curious if that could be looking at mobile data and autonomous vehicles drones the tolls.
Yes, like small Y N vehicles FERC.
For our commercial transportation and personal transportation.
Yeah, I wonder, if you're still seeing that as a potential field.
Yeah for coordinating balance sheet multiple data like that.
So we are but more for the Gemini two chip and the reason I say that is if if you're familiar with our solution or our Gemini one chip goes on elite aboard as I mentioned in the leader Board for the Gemini One has an FPGA on there that has certain functionality.
That is critical for our solution with Gemini two we take that functionality that's on the FPGA and we put it within the Gemini two chip and so now we can rid ourselves of that of that large FPGA and so some of the applications you are talking about.
Power and form factor being smaller is more important and so being able to rid ourselves of that FPGA will allow us to pursue those markets that were really a bit too challenging for our Gemini one chip.
Yeah.
Alright.
Yeah, that's right.
But thinking about that and there's like this next step prospects as I think about the sensitivity of timing and business relationships, especially these advanced steel that are acquiring a lot of R&D.
And my engender, a kind of a commitment from these large companies are developing their programs and the component companies and tell there.
Yes, they are making systems on chips that are highly customized and required a lot of investment.
They hope to get something back on and just.
Trying to think about how.
Yeah, they might approach or how you might approach that relationship in terms of holding the place.
And for.
For the future development and not having to directly compete with all these very inefficiently developed system on chips.
To tell but rather.
You kind of put them to anticipate being able to adopt your hardware and even your software and to kind of have that in mind as they develop these programs yeah cause I'm wondering if that is.
And that you are seeing.
They have a one to two year.
We have developed a development plan that you talked to potential clients.
So I wanted to make sure I am not sure I fully understood your question, but as far as custom silicon and system on chips and everything out there. Most everything has really been geared towards the trading portion of the market and you know as we've discussed in the past that's not the the application we're focused on.
We're focused on similarity search you know and there are obviously other applications or computation and.
Intensive that our solution lends itself, well and because of the way we've architected, our part where we we actually do the processing and the search in place.
As opposed to having to fetch data and rewrite data we that technology. We have is patent protected and we haven't seen anybody tried to do that at this point and so we have carved out a niche.
In this similarity search in and so as far as other silicon coming in or others. So sees its its really like I said most of the solutions. We've seen has really been geared around trying to make the training faster.
Hum.
Alright.
I think for us.
Thanks, Francis and Theyre excited the olive garden, just confirmation after confirmation gorilla.
Thanks Luke.
Our next question is from George Gaspar Who's a private Investor. Please proceed with your question.
Good day to everyone there.
George Gaspar here.
Could you relate a little bit more detail about how many employees you have now versus when you started to disengage employment and how does that relate what how many total people that's left.
What is your employment number now and could you give us an idea of that.
How much of the stack.
How many shares of stock were helped by the employees that you have left to go.
So we had approximately little over 180 in total now we're down to like round right around 165, or so are the people that left I.
I don't recall the exact number of options that were canceled upon them, leaving but it wasn't a significant number I mean, we still have about let's say, maybe about <unk> 5 billion or so option shares outstanding.
Yes, I would say that again there how many shares are outstanding to employee you want to stay at $8 5 million.
First that have been grounded.
Eight and a half million.
Hum.
And then the 654000.
The base tax base stock issuance.
And it's that way.
Quarter.
How does.
How does that stack up.
In terms of the total.
Expense for employees.
Okay.
Noncash and casual.
Yeah.
Hi, Jason.
I can get back to you offline I don't have all that information in front of me right now, but I can get it for if you need it but the stock based compensation expenses is.
We've been running around that level for several years and I don't see it going up significantly it would probably be a similar number.
Okay got it.
Obviously this is the stock based stock and issuance.
It is important to state.
Stabilize your.
Total.
<unk> expense structure.
And do.
We have to assume that that's going to stay in that range of the last quarter would you say that 654000.
Yeah, I would say so.
Okay.
That isn't that's not sure that we've issued.
But that's just assumed value of the options that were granted to employees.
The accounting rules require us to place a value on the option grants and then expense them over over a period of time.
Right, Okay and then this this.
654000.
It is isn't it rated as an expense in terms of your operation.
Quarterly basis correct.
In other words.
We record that in Jacobs.
We recorded that in the income statement every quarter, it's not it's a noncash expense.
It's a noncash expense, okay, yes, alright, okay.
And that.
Yeah.
Gross margin declined that here.
You're looking at.
For the current quarter.
Is there.
Some cross structure associated with that in terms of that.
And boy is that recently have left or are there things that are going on.
What what you're looking at let's say of the that you expressed in your release today.
So that.
Obviously, it could easily have a.
In fact on the gross margin decline, but is there something else going on in terms of.
Uh huh.
The cost structure associated with the further development of Gemini two.
Relative to other quarters.
How does it.
What's the comparison in terms of cost structure.
Relative to.
What you've done on Gemini, one and now you're doing in <unk> and Gemini two.
Well Leila can talk about your last question, but in.
In terms of the gross margin the layoffs really doesn't impact it that much most of the <unk>.
Lay offs other than a couple of hundred thousand dollars or all in operating expenses not not cost of goods sold the gross margin is lower because the revenue is four and we still have you know a fixed.
<unk> expenses that need to be covered by a margin on sales. So that's why the gross margin numbers down but the product mix is still a good product mix with with with a good margins associated with each shipment.
I see okay.
Last question, what would be back on the progress being made in Gemini.
To.
Yeah, Yeah, all right you know if this has taken a long time for the company to really generate.
Customers are.
Giving you orders.
And expanding what they are going to use it for.
Yeah Yeah.
Do you feel that you're very close now and that by the end of the current quarter.
See the end of March that you'll be able to.
Uh huh.
Actually have.
Orders in Gemini for Gemini two going forward or is or do you envision that it's still going to take more.
More time into it Steve.
The June quarter. The September quarter can you can you kind of give us an idea of what you're thinking about in terms of really starting to spin out some revenue stream here.
Yeah.
Yeah. So at this point, we're still seeding the market and building the pipeline as I mentioned, we shipped a couple of systems last quarter, we're anticipating to ship a few more and it's building that pipeline now and so we don't have any production orders at this point, it's still it's still building that are that pipeline.
I see okay and have you been if affected negatively.
The tremendous stardom conditions and.
And California from the middle of the state up.
Is that.
And has that created any kind of problem for you to deal with.
No not at all.
Okay, alright, okay, well I think that you know this has taken a long time in terms of years.
I get this action.
Action going forward and they have to.
The Gemini one and in Q2 and.
If something's got to really start to happen here in terms of getting and the interesting thing is that with this decline that is being seen in your business generally speaking I mean, when I say your business I mean, the general business are associated with that.
The chips.
It would seem like what.
What has been happening in the last couple of three quarters generally for the industry.
I would really put you in a position to take advantage.
Really getting up on track and going with some business that would be developed from what you've been trying to accomplish and say the last year.
Can you say anything about that.
Yeah, I'm not sure I, followed the train of thought there I mean, certainly you know we've had the general slowdown in our legacy business English to you know concerning you in to pursue the right you know the the new products, but I'm not sure we follow that train of thought there.
Okay, well, I, Oh, but I'm, just saying is that.
With business, having fallen off and in trying to see ways of taking.
<unk> of moving into.
And a broader customer base.
Sure you know starting to move forward into the Gemini two area that Oh.
It may be the fact that the industry has got to come out of this decline that it's experiencing but with you having something new to bring to the market that we it would be.
Possible for a T.
T S I T to.
Really take advantage of maybe some momentum.
Cause of what's happened in the industry going downward and that if if you're really getting close now to introducing.
Innovations that you've been working on in the Gemini two.
I would think that the.
The shareholders of your company should be.
Certainly looking forward to a turnaround in revenue stream.
Beyond the first quarter.
Beyond the this is Roger.
Sorry, exactly yeah yeah.
Yeah, we do anticipate even in the legacy we anticipated a bounce back.
By the middle of the year as far as it raises go based off of input from customers.
And again, it's just it's just we need to continue the process with.
With the Apu continue the.
The development, we're doing with researchers.
The government applications and continue to just move forward as you said its a process I see okay in the marketplace.
In the marketplace, we are in now.
We see the Gemini wise.
Ah is a better solution than Oh, the competing part off.
And the Gemini two is the is the lease them bonds better than the Gemini one.
I think we are pretty confident.
That could create the.
The market either for the U S.
In the area we are in.
I see okay. Thank you very much.
Thanks, George a short.
As a reminder, it is star one if you would like to ask a question.
Yeah.
Yeah.
As there are no further questions at this time I would like to turn the floor back over to management for closing comments.
Thank you all for joining US we look forward to speaking with you again, when we report our fourth quarter and food.
Full year fiscal 2020 subito. Thank you.
Yeah.
This.
Foods todays teleconference. You may disconnect.
Thank you for your participation.
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