Q2 2025 GSI Technology Inc Earnings Call
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Ladies and gentlemen, thank you for standing by.
Speaker Change: Welcome to GSI Technology Second Quarter Fiscal 2025 Results Conference Call.
Speaker Change: At this time, all participants are on a listen-only mode.
Speaker Change: Later we will conduct a question and answer session. At that time we provide instructions for those interested in entering the queue for the Q&A.
Speaker Change: Before we begin today's call, the company has requested that I read the following State Park
Speaker Change: The matters discussed in this conference call may include forward-looking statements regarding future events and the future performance of GSI technology that have all of risk and uncertainties that could cause actual results to differ materially from those anticipated.
Speaker Change: These risk and uncertainties are described in the company's form, 10K filed with the Securities and Exchange Commission.
Speaker Change: Board of Trustees. Additionally, I have also been asked to advise you that this conference calls me recorded today, October 24th, 2024, at the request of GSI Technology.
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: Lelene Hsu, the company's Chairman, President and Chief Executive Officer, will be hosting the call today. With them are Douglas Schirle, Chief Financial Officer.
Speaker Change: and D.D.A. Lasserre.
Speaker Change: Vice President of Sales. I would now like to turn the conference over to Mr. Hsu. Please go ahead, sir.
Speaker Change: Douglas Lasserre, Douglas Schirle
Lelene Hsu: Good afternoon and thank you for joining us to review our second quarter Physical 2025 Dimensional Results.
Lelene Hsu: We are starting to see a significant turnaround in our SOM business this quarter, driven by two key factors.
Lelene Hsu: First, existing customers are actively depleting their channel inventories.
Lelene Hsu: and we anticipate they will resume orders in the upcoming quarters.
Lelene Hsu: Second, we have secured a new S& design with significant growth potential.
Lelene Hsu: Our long-standing partnership with the provider in the semiconductor manufacturing process is yielding significant demand related to a new AI chip.
Lelene Hsu: Douglas Lasserre, Douglas Schirle
Lelene Hsu: I want to update you on our Phase 1 and 2 HBIR Conference.
Lelene Hsu: We are on track to meet the deadline for the Gemini 2 benchmarking project and fulfill our SBIR contract with the U.S. Air Force Research Lab by December 31, 2024.
Lelene Hsu: followed by the delivery of the software algorithm in the first quarter of calendar 2025. Didier will expand further on our SBIR opportunities in his comments.
Speaker Change: Douglas Lasserre, Douglas Schirle
Didier: Switching now to the APU development. We remain on track to meet our milestones on Gemini 2 including the benchmarking which will be completed by the end of this year.
Didier: We are excited that we have software fixes.
Didier: for the box in the first spring of Gemini 2. This means we are much further ahead on the Gemini 2 software development and the library building at this stage than we were with Gemini 1.
Didier: Lastly, on the APU roadmap, we are in the early stage of hardware development of a potential APU for use with LLM.
Didier: which we named Plato. On our third quarter earnings conference call I will provide more detailed plan for this product and its potential applications.
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: However, I want to ensure stakeholders, now that we have a roadmap beyond Gemini 1 and 2 for the APU, that we can execute given the company's resources.
Speaker Change: In previous call, I discussed our excellent opportunities, FAR opportunities.
Speaker Change: Two companies are currently using the APU for SAR applications and both projects are progressing well. TDA will give an update on the current status of this engagement.
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: For the fiscal second quarter, we reported revenue of $4.6 million in line with our guidance. Our growth margin was under pressure this quarter due to the mix of products and non-recurring surveillance costs related to workforce reduction in manufacturing.
Speaker Change: During the quarter, we introduced strategic cost-cutting measures to extend our financial runway and capitalize on our immediate and long-term opportunities.
Speaker Change: This action, including workforce reduction across all departments and enhanced operational efficiency, are projected to generate annualized savings of about $3.5 million.
Speaker Change: We take this restructuring initiative and improve its revenue outlook to reduce our cash flow significantly.
Speaker Change: Now I will hand the call over to C.J. who will discuss our business performance further.
Speaker Change: Switch it, go ahead, Didier.
Didier: Thank you, Lillian. Let me start with the new SRAM opportunity that Lillian mentioned earlier. Our customer system is used to manufacture a leading AI chip developer's top-selling chip in their newly released chip.
Didier: Volumes shipments of our 144 megabit SRAM to this customer began at the start of calendar 2024 coinciding with an increase in the forecast for its product used in AI chip that is coming online.
Didier: Demand for their product has been rising along the rapidly growing need for the top-selling and newly launched chips for the leading AI chip maker.
Didier: Interest in this new AI chip has been exceptional as leading tech companies compete to deliver the best hardware for their large language model platforms.
Didier: We expect our collaboration with this customer to drive substantial demand for our SRAM chips. This customer is now positioned to become our number one customer in the near future.
Didier: In addition, we have two other large existing customers that have worked through excessive inventory and we anticipate this will increase SRAM orders in the future quarters.
Speaker Change: Let me switch to recap our SBIR work. We are still working through the milestones of the two SBIRs that we previously were granted. As a reminder, these were the $1.25 million and the $1.1 million respectively.
Speaker Change: For the 1.1 million grant, we aim to deliver a YOLO 3 and YOLO 5 model within four months that can be used for any real-time object detection application. If you are unfamiliar with the acronym YOLO, it stands for You Only Look Once.
Speaker Change: YOLO models are real-time object detection algorithms that immediately determine where objects are by drawing boxes around them and what those objects are by identifying their types in any image.
Speaker Change: We are still in contract negotiations on the SBIR. We were awarded last quarter by a new large division of the DoD for an EDGE board application. We hope to finalize that contract within the next month and begin working on the project deliverables before calendar year end.
Speaker Change: Before I move on to customer and product breakdown, I want to expand on the SOAR opportunities that Lillian mentioned.
Speaker Change: GSI is engaged with two customers on SAR Edge applications that have completed evaluations with Gemini 1. Recently they both began evaluating Gemini 2.
Speaker Change: Our ongoing SAR engagement with an Asian Defense Research and Development Organization is transitioning from evaluating Gemini 1 to a Gemini 2L, which is a low-power version of our Gemini 2. This is intended for an in-flight application using SAR image generation.
Speaker Change: The project using Gemini 2L has specific applications that better align with the lower power profile needed for this flight application.
Speaker Change: Another customer, a U.S. aerospace company specializing in SAR technology, is investigating the possibility of using Gemini 2 on a satellite for SAR applications. The company recently requested new benchmarks for a more complex application, which we are in the process of executing now.
Speaker Change: As Lene mentioned, we are using the lessons learned from that experience to advance our timeline for GemIIni 2. In both cases, we successfully used GemIIni 1 to demonstrate the SAR capabilities, which paved the way for GemIIni 2 to be evaluated for use as a real-time edge application, I'm sorry, edge device for these applications.
Speaker Change: We are also leveraging SBIR opportunities including ones that we have won to help fund the further development of Gemini 2 and PLATO.
Speaker Change: Let me switch now to customer and product breakdowns for the second quarter.
Speaker Change: In the second quarter of fiscal 2025, sales to Nokia were $812,000, or 17.8% of net revenues, compared to $1.2 million, or 20.3% of net revenues in the same period a year ago, and $998,000, or 21.4% of net revenues in the prior quarter.
Speaker Change: Military defense sales were 40.2% of second quarter shipments compared to 34.8% of shipments in the comparable period a year ago, and 31.9% of shipments in the prior quarter.
Speaker Change: Sigma quad sales were 38.6% of second quarter shipments compared to 55.8% in the second quarter of fiscal 24 and 36.3% in the prior quarter.
Speaker Change: I'd now like to hand the call over to Doug. Go ahead, please. We reported net revenues of $4.6 million for the second quarter of fiscal 2025, compared to $5.7 million for the second quarter of fiscal 2024, and $4.7 million for the first quarter of fiscal 2025.
Speaker Change: Gross margin was 38.6% in the second quarter of fiscal 2025, compared to 54.7% in the second quarter of fiscal 2024, and 46.3% in the preceding first quarter of fiscal 2025.
Speaker Change: The decrease in gross margin in the second quarter of 2025 was primarily due to shifted product mix and non-recurring severance costs associated with manufacturing workforce reductions.
Speaker Change: Total operating expenses in the second quarter of fiscal 2025 were $7.3 million compared to $7.2 million in the second quarter of fiscal 2024 and $1.1 million in the prior quarter.
Speaker Change: Prior quarter operating expenses included a gain of 5.7 million dollars related to the sale and lease back of the company's headquarters.
Speaker Change: Research and development expenses were $4.8 million compared to $4.7 million in the prior year period and $4.2 million in the prior quarter.
Speaker Change: Selling general and administrative expenses were $2.6 million in the quarter ended September 30, 2024, compared to $2.5 million in the prior year quarter and $2.6 million in the previous quarter.
Speaker Change: Second quarter fiscal 2025 operating loss was $5.6 million, compared to an operating loss of $4.1 million in the prior year period, and operating income of $1.1 million in the prior quarter.
Speaker Change: of $149,000 and a tax provision of $23,000 compared to $71,000 in interest and other income and a tax provision of $33,000 for the same period a year ago.
Speaker Change: In the preceding first quarter, net loss included interest and under-income of $55,000 and a tax provision of $57,000.
Speaker Change: Net loss in the second quarter fiscal 2025 was 5.4 million dollars or 21 cents per diluted share.
Speaker Change: compared to a net loss of $4.1 million, or $0.16 per diluted share, for the second quarter of fiscal 2024.
Speaker Change: and that income of $1.1 million, or $0.04 per diluted share, inclusive of a one-time gain of $5.7 million on the sale and lease-back transaction related to sale of the company's headquarters for the first quarter of fiscal 2025.
Speaker Change: Total second quarter pre-tax stock-based compensation expense was $663,000 compared to $676,000 in the comparable quarter a year ago and $658,000 in the prior quarter.
Speaker Change: September 30, 2024 The company had $18.4 million in cash and cash equivalents, compared to $14.4 million on March 31, 2024.
Speaker Change: Working capital was $21.1 million as of September 30th, 2024 versus $19.1 million on March 31st, 2024.
Speaker Change: Stockholders' equity as of September 30, 2024 was $33.3 million.
Speaker Change: compared to $36 million as of the fiscal year ended March 31, 2024.
Speaker Change: On a prior earnings call this year, we announced that the company had initiated a comprehensive strategic review.
Speaker Change: and establish a special committee of the board to evaluate specific strategic alternatives.
Speaker Change: We continue to work with Needham & Company as our strategic and financial advisor to assist in this process.
Speaker Change: Operator, at this point we will open the call to Q&A.
Speaker Change: Thank you. At this time we'll be conducting a question and answer session. If you'd like to ask a question please press star 1 on your telephone keypad.
Speaker Change: A confirmation tone will indicate your line is in the question queue.
Speaker Change: You may press star 2 if you'd like to remove your question from the queue.
Speaker Change: For 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.
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: Our first question comes from Jeff Bernstein with Silverberg Bernstein. Please proceed with your question.
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: Hi, good afternoon.
Jeff Bernstein: Question on the SRAM opportunity. So are you saying that's for a semi- equipment wafer fabrication equipment customer or is a semi-test equipment customer?
Jeff Bernstein: Douglas Lasserre, Douglas Schirle
Speaker Change: along those lines yeah we don't want to give too much detail because right now we don't want to name our customer I mean it's been a customer we've had for many years but they've never been a 10% customer so we haven't identified them specifically you know that'll probably change in the quarters coming up because they'll exceed that
Speaker Change: various APUs now. So there was mention of something called Cradle. Is that like a low-power version of Gemini 2 or what's Cradle and what's the L that you referred to, the low-power Gemini 2?
Speaker Change: Shirk
Speaker Change: So, we have Gemini, as you know. Gemini 2L is a derivative of Gemini 2. It's not a new design.
Speaker Change: Douglas Schirle, CFP®, is the director of the American Heart Association.
Speaker Change: And so it's a way for us to limit which, you know, what's working inside the chip.
Speaker Change: And so people can use kind of a smaller variable of the device, which in turn gives them a very low power part. And so that's the Gemini 2L is just a derivative of our existing Gemini 2. PLATO, however, is a new design.
Speaker Change: Douglas Schirle, CFP®, is the director of Product Management and Sales, Inc.
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: Gotcha, and that's for inference.
Speaker Change: You're correct.
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. One moment, please, while we poll for questions.
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: There are no further questions. At this time, I'd like to turn the call back over to management for any closing comments.
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: Thank you all for joining us. We look forward to speaking with you again when we report our third quarter physical 2025 results.
Speaker Change: Thank you.
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
Speaker Change: Douglas Lasserre, Douglas Schirle
Speaker Change: Douglas Schirle, CFP®, Financial Planner & Investment Advisor
Speaker Change: Douglas Lasserre, Douglas Schirle