Q3 2024 GSI Technology Inc Earnings Call
Ladies and gentlemen, thank you for standing by.
To GSI technology's third quarter fiscal 'twenty 'twenty four financial results conference call.
This time all participants are in a listen only mode. Later, we will conduct a question and answer session at that time, we'll provide provide instructions for those interested in entering the queue for the Q&A before.
company: Before we begin today's call. The company has requested that I read the following safe Harbor statement.
company: 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 are in search and <unk> and.
GSI technology: And uncertainties are described in the company's Form 10-K filed with the Securities and Exchange Commission. Additionally, I've been asked to advise you that this conference call is being recorded today January 22024 at the request of GSI technology.
GSI technology: It's in the call today is Lee lean shoe, the company's chairman, President and Chief Executive Officer.
With him are Douglas Shirley Chief Financial Officer, and Didier Mr. Vice President Mr. <unk> I would now like to turn the conference over to Mr. Hu. Please go ahead Sir.
GSI technology: Yeah.
Mr. Hu: Well afternoon, and thank you for joining us.
Mr. Hu: I am pleased to share several key update call.
Mr. Hu: Eventful third quarter.
Starting with our product development.
Mr. Hu: <unk> achieved a major milestone that will keep us on track to cause offence, Jimmy that Apu family.
But in the winter.
Mr. Hu: 40 complete complete the radiation hardened testing on the give me not won a P U.
Mr. Hu: Compute and space applications.
Jimmy Apu: The person who dog confirmed that give me that one had met the K. So this could.
Jimmy Apu: To be a radiation totaled in pockets as well.
We are actively engaged with civil society.
Jimmy Apu: Companies that need radiation called him a P U.
Jimmy Apu: And we are encouraging.
Jimmy Apu: There is some interest.
Jimmy Apu: Moving to our next generation Apu.
Jimmy Apu: We compete complete the people of Gemini two in the third quarter.
Jimmy Apu: In late February we will evaluate the initial screening.
Jimmy Apu: To begin assembling Gemini two chip in the second half will get into 'twenty to 'twenty four.
Jimmy Apu: Do you mean at two eight times, so far in terms of memory and the 10 times PE. The performance didn't give me that one.
Speaker Change: No the bodies lower calls.
Speaker Change: This dramatically improved cost.
Cost performance allow us to target a much broader range of applications.
Jimmy Apu: The 96 megabyte of internal memory.
Speaker Change: Jim and I to 10 feet, the many AI models and on the chip.
Jimmy Apu: Yeah morning increase data processing, we thought it says 10.
Jimmy Apu: No memory they cannot do it.
Jimmy Apu: This is Jim and I too was tremendous but the vintage on contact H obligations like Jordan and the asos.
Jimmy Apu: We anticipate starting initial Osaka reporting we set a customer in the second half we'll get into 2024.
Lastly, in the third quarter, we shipped the dish in cotton.
Jimmy Apu: The two customers.
Jimmy Apu: Two.
Jimmy Apu: But to do in Poland.
Speaker Change: D C S P a R.
Speaker Change: H contract in the amount of $1 $1 billion.
Jimmy Apu: Looking ahead, we are in the early stage of developing the architecture for all these generation didn't Jimmy now St. Jude.
Jimmy Apu: We had a discussion with several hyperscale is about if you get the option to purchase.
Jimmy Apu: The emerging market to beat even the data center.
In addition to help helping hyperscale data.
Jimmy Apu: Data center power consumption.
Jimmy Apu: You can also provide significant benefit to end.
Jimmy Apu: And users, but who do you see infants calls we initiated preliminary discussion with two major hyperscale, who have great insights all technology and continue to work with internal keys on early stage concepts.
Jimmy Apu: Turning to off my initial controllers.
Jimmy Apu: The third quarter revenue of $43 million okay.
Jimmy Apu: Okay.
Jimmy Apu: Gross margin was 56% at.
Jimmy Apu: At the midpoint of our guidance.
Jimmy Apu: The sequential improvement in gross margin reflects product mix this quarter.
Jimmy Apu: Our operating expenses.
Jimmy Apu: <unk> increased both year over year in the sequentially, including a one time expense of $244 million for.
For pre production Mark with Gemini two.
Jimmy Apu: We view these I'll say.
Jimmy Apu: Lynn and future growth.
Jimmy Apu: And at what grade he couldn't.
Monkey Suez market niche.
Jimmy Apu: Yeah.
Jimmy Apu: In parallel we continue discussion.
Jimmy Apu: So did you.
Jimmy Apu: Continent to support given to launch a suite.
Jimmy Apu: With the human Eye Street development.
Jimmy Apu: Our most ambitious and chip today, we anticipate a gymnast we would do kras can you. If you can keep your total investment and partnership crew helped mitigate all funding from India.
Jimmy Apu: We remain focused on prudent financial management to fuel our product road map.
Jimmy Apu: Pension and <unk> market.
Jimmy Apu: Recently Cornell University published.
Speaker Change: Research paper spot 19 unique efficiency Oh forgive me that one if you do a theater.
Jimmy Apu: Location of future E D M a X.
Jimmy Apu: Video will discuss the details of the paper.
Jimmy Apu: In preparation for GSI.
Jimmy Apu: We've just come out.
Jimmy Apu: Yes.
Jimmy Apu: In closing it was an eventful third quarter with tremendous progress or Mark do you mean that road map.
Mr. Hu: <unk> expense management and X gene two increase off of an initial phase V. D. T to stop all growth we remain laser focused on.
Mark: Oh, you know basically a field to market. So I mean, Don can value creation.
Don Smith: Now I'll turn the call.
Don Smith: Overdue E D.
Don Smith: These costs are all business performance food group.
Don Smith: Please go ahead D D.
Mr. Hu: I mean I wanted to provide some additional context on why we are so confident in the market potential for our Apu architecture, especially for inference workloads first the unmatched flexibility of our variable bit processing is key with 2 million undefined bit processors that can be toggled from one bit to 2 million bits cycle by cycle.
Mr. Hu: Our apu kind of adapt to real time.
Mr. Hu: I'm, sorry in real time to maximize efficiency.
Mr. Hu: This dynamic bit wise configure ability can process long strips one bid at a time is ideal for in France since research shows that different bit precision or more efficient for different models.
Our a pea architecture breaks the von Neumann model by removing the data fetch function.
Mr. Hu: Innovative design delivers higher performance with lower power consumption.
Mr. Hu: As Leen mentioned these capabilities directly address the critical needs of data centers and emerging applications by lowering data center power consumption and reducing insurance costs for Gen. AI end users.
Importantly, I want to emphasize that our Apu represents true in memory.
Mr. Hu: I'm, sorry, true compute and memory architecture, unlike competing shifts I cleaned compute and memory they are actually near memory compute.
Mr. Hu: And our Apu has logic physically integrated in the memory business.
Mr. Hu: Fundamental difference and architecture will ultimately enable our apu to do to achieve the transfer made of speed and efficiency gains we anticipate as we scale, our true compute and memory architecture gives us a sustained competitive advantage.
Mr. Hu: To accelerate ecosystem development, we are focusing on getting Apu in the hands of key partners in the military Hyperscale, there's and academia.
Mr. Hu: They're real world deployment, and libraries will showcase the benefits expand use cases and support our go to market capabilities.
Mr. Hu: Yeah.
Mr. Hu: One example of this strategy is helping us promote and monetize Gemini one is a recently published research paper from Cornell University. We are pleased to announced that the Cornell paper demonstrates our Apu one I'm sorry, our Gemini one <unk> unique performance benefits for genomic applications.
Cornell researcher: Leveraging the Apu's massively parallel in memory architecture, Cornell researcher showed up to six times faster DNA sequencing filtering compared to a 16 core CPU.
Mr. Hu: This showcases our technologies advantage for data intensive workloads, requiring rapid low precision comparisons.
Jimmy Apu: This study also revealed strong potential to accelerate other applications with similar data matching needs, including medical data analysis search security and more with.
Jimmy Apu: With simple scaling our apu can be packed into cost effective high density servers to multiply this performance for real world deployments that can lower power budgets for hyperscale as compared to GPU solutions.
Jimmy Apu: These results enforce I'm, sorry, reinforce our significant market opportunities across sectors that rely on efficiently finding patterns of similarities within massive datasets.
Jimmy Apu: We remain focused on delivering the game changing in memory compute performance to customers across multiple industries.
Jimmy Apu: As we lean mentioned, we anticipate receiving first silicon devices of Gemini two in February after initial evaluation and debugging, we will target a second spend this summer and initiate benchmarking shortly after.
Our $2 $3 million and S. P. I R funding will support this development as a reminder, this.
Jimmy Apu: This includes our recently announced second S. P I R.
Don Smith: Our direct to phase two 1.1 million contract to create specialized algorithms for the U S Air Force Research Laboratory.
The target applications include and craft applications, such as search and rescue object detection moving target indication change detection and S. S. I M N G. P S absent situations.
Don Smith: We will also develop algorithms using data from the U S space force to showcase the performance benefits of edge compute and memory Apu to integrated circuit.
Don Smith: In summary.
Mr. Hu: The versatility of architecture hands on customer engagements and ecosystem partnerships gives us gives us confidence in our market opportunity, we have a robust product.
Mr. Hu: Product roadmap to deliver continuous innovation that we can that we believe will capitalized apu adoption across multiple industries in the coming years.
Mr. Hu: So let me switch now to customer and product breakout for the third quarter.
Mr. Hu: In the third quarter of fiscal 'twenty 'twenty, four sales to Nokia were $807000 or 15.2% of net revenues compared to $1 3 million or 20% of net revenues in the same period a year ago.
Mr. Hu: And $1 2 million or 23% of revenues in the prior quarter.
Mr. Hu: Military defense sales were 28, 2% of third quarter shipments compared to $26 two of shipments in the comparable period a year ago.
Mr. Hu: And 34, 8% of shipments in the prior quarter.
Mr. Hu: Sigma quite sales were 46, 9% of third quarter shipments compared to 45, 2% in the third quarter of fiscal 2023.
Mr. Hu: And 55, 8% in the prior quarter.
Mr. Hu: And one last note.
Mr. Hu: Product sales in the third quarter, we shipped over $600000 of a prototype radiation hardened SRAM to two different customers. These will be deployed in two separate satellite programs.
Mr. Hu: I'd like to hand, the call over to Doug Doug Go ahead. Please thank you T D.
Mr. Hu: We reported a net loss of $66 million or 26 cents per diluted share on net revenues of $5 $3 million for the third quarter fiscal 2024.
Mr. Hu: Compared to net losses of $4 8 million or 20 cents per diluted share.
Mr. Hu: Net revenues of $6 4 million for the third quarter of fiscal 2023.
Douglas M. Schirle: Net loss of $4 $1 billion or 16 cents per diluted share.
Mr. Hu: Net revenues of $5 7 million in the second quarter of fiscal 'twenty 'twenty four.
Mr. Hu: Gross margin was 55, 9% compared to 57.
Mr. Hu: 5% of the Cartier period.
Mr. Hu: 54, 7% of the preceding second quarter the.
Mr. Hu: The changes in gross margin were primarily due to changes in product mix and volume sold in the three periods.
Mr. Hu: Total operating expenses in the third quarter of fiscal 'twenty 'twenty four for it.
Mr. Hu: $9 7 million compared to eight 5 million for the third quarter fiscal 'twenty three.
Mr. Hu: And $7 2 million for the prior quarter.
Mr. Hu: Research and development expenses were $7 million compared to $5 $5 million in the prior year period.
Mr. Hu: $4 $7 million for the prior quarter.
Mr. Hu: Selling general and administrative expenses were $2.7 million in the quarter ended June.
31st 2023.
Mr. Hu: Care to $3 million in the prior year quarter to $5 million from the previous quarter.
Mr. Hu: Third quarter fiscal 2024, I'll predict loss was $6 $7 million compared to $4 $8 million in the prior year period.
Mr. Hu: Turning loss support $1 billion in the prior quarter.
Mr. Hu: Third quarter fiscal 2024, net loss net interest and other income of $155000 and attach versus $71000.
Mr. Hu: Compared a net interest and other income of $61000.
Mr. Hu: Cash provision of $84000 for the same period a year ago.
Mr. Hu: The preceding second quarter net loss included interest and other income of $71000.
Mr. Hu: The tax provision of $33000.
Mr. Hu: Total third quarter pretax stock based compensation expense was $649000 compared to $655000 in the comparable quarter a year ago at $676000 from the prior quarter.
Mr. Hu: The December 31st 2023, we had 21 $6 billion of cash or cash equivalents.
Mr. Hu: <unk> to 36 36 million in cash cash equivalents and short term investments at March 31, 'twenty to 'twenty three.
Mr. Hu: Working capital was $23 1 million as of December 31st 2023 versus $34 $7 million at March 31st 2023.
Mr. Hu: With no debt stockholders equity.
Mr. Hu: December 31 was $39 6 million compared to 51 point formula as or the fiscal year ended March 31st 2023.
Mr. Hu: For the fourth quarter of fiscal 'twenty 'twenty four.
We anticipate that reminiscent of a range of $4 to five $4 million with gross margin of approximately 55% to 57%.
Mr. Hu: Operator at this point, we'd like to open the call to Q&A.
Mr. Hu: Okay.
Mr. Hu: Thank you well now be conducting a question and answer session.
Mr. Hu: If you'd like to ask a question. Please press star one on your telephone keypad.
Mr. Hu: A confirmation tone will indicate your line is in the question queue. You May press star two if he would like to turn it over to your questions in the queue.
Mr. Hu: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the therapies.
Mr. Hu: I'm not gonna please while we poll for questions.
Mr. Hu: Okay.
Mr. Hu: Thank you. Our first question is from Brett Reiss with Janney Montgomery Scott. Please proceed with your question.
Brett Reiss: Hi, gentlemen.
Brett Reiss: You can talk to me like come six years old well could you just explain what is an infrequent 2.4 million dollar charge for a pre production mask.
Brett Reiss: Yeah, Yeah yeah.
Brett Reiss: I'm not an engineer just if you can give me some more clarity on that.
Brett Reiss: So every time, we have a product we have kind of a mess that prepared to run in the fab to to a manufacturer the wafers not typically when.
Brett Reiss: When we incurred charges for mass set for.
Brett Reiss: Production product, we will capitalize that into prepaid and amortize it over a 12 month period.
Brett Reiss: However, the one exception to that is when we have a massive.
Brett Reiss: <unk> prepared on a new process technology that we've never run before.
Harsh out expense R&D expense.
Brett Reiss: So in this quarter.
Brett Reiss: Well last quarter.
Brett Reiss: We taped out.
Brett Reiss: Gemini two are on a process technology, we've never used a 16 nanometer 16 nanometer process at TSMC now since we've never use that process before.
Brett Reiss: We charged that too familiar dollars to R&D expense.
Brett Reiss: Alright. So this is one shot it's not gonna be a reoccurring.
Brett Reiss: No no no.
Brett Reiss: It will recur in the future when we.
Brett Reiss: Have a another product that takes out on a process technology that we've never used before.
Brett Reiss: So it's infrequent it doesn't happen every year since it most every two or three years.
Brett Reiss: Okay. Okay.
Brett Reiss: You know the cash which was my margin of safety in in my investment here, you know keeps dwindling down.
Brett Reiss:
Brett Reiss: Yeah, I'm, a little concerned about that you know some of these initiatives with bringing in other joint venture partners.
Brett Reiss: What's the timetable on that and how long do we have you know.
Before we burn through the remaining cash.
Brett Reiss: Well you know where we're currently are looking at various opportunities in D. D mentioned talking to hyper hyper scalar is another show.
Brett Reiss: To come out with our next product that's going to require significant investments. So we're we're looking for partners or other sources of Oh.
Brett Reiss: Funding. In addition to that we have a building that we own that's worth quite a bit of money and it will.
Brett Reiss: We'll be looking at potentially selling that building in the near future.
Brett Reiss: Right.
Brett Reiss:
What is the building appraised that and you know in a base case scenario, what what do you think you could sell it for.
Brett Reiss: We think we can probably get somewhere in the range of $10 million to $13 million.
Brett Reiss: Right.
Brett Reiss: Alright that type two that because that's a fully paid for.
Brett Reiss: Right right.
Brett Reiss: Could you just give me a broad outlines of what the structure.
Brett Reiss: Of the joint joint venture partners a capital.
Brett Reiss: Investment in <unk>.
Brett Reiss: G S. I T would take we would they pay an upfront milestone payment yeah.
Brett Reiss: Other payments to follow would be an equity investment what what do you think the structure of that would look like.
Brett Reiss: So.
Brett Reiss: It could be either of those and what I mean is when you lean was talking about a partner for funding. The next program that specifically for Gemini three so Jim and I too was fully funded internally, but for Jim and I are three we are looking for a partner for that.
Don Smith: Most likely a customer funds.
Don Smith: Funding partner.
Don Smith: But aside from that that would be more of an <unk> type of funding. So they would be milestones associated with that but.
Don Smith: From that we are also open to equity investing.
Mr. Hu: Investments in the company as well.
Mr. Hu: Okay I'll drop back in queue. Thanks for taking my questions. Thank you.
Mr. Hu: If you'd like to ask a question. Please press star one.
Mr. Hu: Our next question is from Jeff Bernstein.
Jeffrey Bernstein: Silverberg Bernstein capital. Please proceed with your question.
Jeffrey Bernstein: Yeah, Hi, good afternoon.
Jeffrey Bernstein: So just a question on the congratulations on placing those.
Jeffrey Bernstein: Those Rad hard SRAM.
Hum for evaluation.
Jeffrey Bernstein: If you were to win those programs about how much revenue and over what time period might you be able to gains.
Jeffrey Bernstein: Gains from those those two satellite programs.
Jeffrey Bernstein: Sure. So what what are the programs was.
Jeffrey Bernstein: And again this is just a prototype quantity for demonstration purposes. One of them was just over 500000 and the other one was about 150000 and it totaled 41 parts that we ship. So you can do a quick calculation, but the asps.
Jeffrey Bernstein: Our on those.
Jeffrey Bernstein: And so those are just a D D again prototype quantities. So obviously.
Jeffrey Bernstein: You can multiply by by something we don't have the quantities. Yet these are programs that they're looking to launch a.
Jeffrey Bernstein: Within the next year and so it would be some time.
Jeffrey Bernstein: Second half of 2025 as soon as before they released production, but certainly it would be north.
Jeffrey Bernstein: If the prototype is 500000, you can imagine what production might be.
Jeffrey Bernstein: And so these would be like G. O satellite. So news there arent satellite networks needs are going to be individual larger satellites.
Jeffrey Bernstein: So are these ones are.
Jeffrey Bernstein: X one is G O one is actually legal.
Jeffrey Bernstein: Okay.
Jeffrey Bernstein: And.
Jeffrey Bernstein: Well you get a automatic win with these evaluation parts are you going to get a ride into space on one of these in and actually get you know sort of Providence for matter or are we still looking to get that some somewhere else that yeah. No. So certainly we have as we spoken in the past we have.
Brett Reiss: Their prototype.
Brett Reiss: Devices, we've shipped out already in the last couple of years and so it's it could be any of the programs. We've said in the past or these two one of these looks like is fairly accelerated in their time table. So there's a chance one of them.
Brett Reiss: The ones, we just shipped this last quarter could get up fairly quickly.
Brett Reiss: Okay.
Brett Reiss: And then.
Brett Reiss: Nokia lowest revenue from them and forever.
Brett Reiss: What's the story on Nokia and the outlook for that that router that you sell into.
Brett Reiss: So that's.
Brett Reiss: Their contract manufacturers, because we said we said these parts to two separate contract manufacturers and they were well it's had a little bit of inventory. So they were burning through some inventory as far as the we get I think we've talked in the past 12 months rolling forecasts from Nokia and those still.
Brett Reiss: Our coming in or around the run rate we've been seeing for the last couple of quarters. So just a little bit north of what we did this past quarter.
Brett Reiss: Hum.
Brett Reiss: Somewhere in the 1 million million, one kind of a range a quarter.
Brett Reiss: Okay and at need them I think you also mentioned in addition to looking for a partner.
Brett Reiss: And he has a partner potentially a.
Brett Reiss: Development partner, possibly a hybrid of both of those for Gemini three I think you also mentioned something about potentially licensing IP.
Brett Reiss: It sounds like for what would probably be an edge kind of case for semi conductor IP for.
Brett Reiss: Doing in process and in memory processing.
Brett Reiss: Can you just talk about that would that be sort of a upfront.
Brett Reiss: License and royalty stream or just give some color around that.
Yeah.
Brett Reiss: Well, we are more focused on the Jimmy and I see so it could be I P. O E. Cooper a pop up your view on them for the customer. So physically are I think we have.
Jimmy Apu: So we mentioned in the conference call.
Jimmy Apu: P D. P D are free to quote.
Mr. Hu: Over the quarter.
Mr. Hu: So.
Mr. Hu: Yeah, so he's still working on it.
Mr. Hu: Yeah.
Mr. Hu: Yes.
Mr. Hu: Thank you there are no further questions at this time.
Mr. Hu: I'd like to hand, the call back to Lee lean too for any closing comments.
Mr. Hu: Thank you all for joining US we look forward to speaking with you again, when we pull all fourth quarter.
Mr. Hu: The full year of physical 2020 for Rudolph.
Mr. Hu: This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Mr. Hu: Okay.