GSI Technology, Inc. (NASDAQ:GSIT) Q3 2023 Earnings Call Transcript - InvestingChannel

GSI Technology, Inc. (NASDAQ:GSIT) Q3 2023 Earnings Call Transcript

GSI Technology, Inc. (NASDAQ:GSIT) Q3 2023 Earnings Call Transcript January 26, 2023

Operator: Greetings, and welcome to GSI Technology Inc. Third Quarter Fiscal Year 2023 Results. As a reminder this conference is being recorded. It is now my pleasure to introduce your host, Mr. Lee-Lean Shu, Chairman, President and Chief Executive Officer. Thank you, Mr. Shu. You may begin.

Lee-Lean Shu: Good afternoon, and thank you for joining us to review our fiscal third quarter 2023 financial results. Third quarter revenue of $6.4 million was within guidance but at the lower end. Revenue growth was impacted this quarter by the uncertain outlook for the global economy. Despite this, we continue to see demand for our SRAM products, a interest in our radiation hardened and radiation tolerant products. While customer order patents are variable right now, these fluctuations are related to economy and external factors, not changes in the market requirements for our products. Despite the lower revenue in the quarter, increased sales of higher-margin products, resulting gross margin of 57.5% exceeding the high-end of our guidance range.

While research and development costs declined sequentially, we saw an increase in selling, general and administrative expense, primarily related difference in the level of quarterly adjustments to contingent consideration and the severance expense related to recent layoffs. To ensure success and align our resources with the Company’s goals, we announced several cost-reduction initiatives as at the end of November 2022. The executive team took a comprehensive approach to identify and implement our expense reduction measures, which included a thorough review of all expenses and was streamline process and improve operational efficiency. We have two objectives with this strategy, one to reduce our cash burn; and two, to align our resources around developing the APU.

We are on track to achieve $7 million in savings on an annualized basis to target cost reductions. These measures aim to rightsize our operation and precisely manage spending to increase efficiency and focus our resources on advancing the proprietary APU technology. Let me update you on where we are today with APU hardware and software. The hardware development team is on track to take out Gemini-2 in the first half of this calendar year, which puts us on the schedule to see the first win by late summer. In that case, we could test the Gemini-2 chip by . If everything goes accordingly, we could have a second table to fix back to early last calendar year. In parallel, once we have achieved that the software team can use, they will start developing the API and the library for Gemini-2.

Keep in mind that it took in the Gemini-1 and forth to increase the EU and speed. Gemini-2 has 8x memory density over Gemini-1 and has 30x cost performance improvements. Gemini-2 can greatly enhance our market push of APU technology and provide further substantial savings in power and mono server footprint while enabling large-scale real-time search and HPC workloads. Software for Gemini-1 is an area of intense focus currently. We have a full build up library deployed and used by customers and one research institute has been able to rely on library based only for their projects. Our GRA library is developed for SAR applications, and we have completed a POC project with IAI/Elta . The Elta is also evaluating a GPU solution to benchmark against the APU.

We could see some initial sales once the APU performance is proven favorable. In the meantime, we are marketing the SAR solution to other customers. We have recently improved our GSI library for similarity search applications. We are engaging with a large corporation for the POC project for our own print similarity search project that requires very high accuracy and a low latency. The improved GSI library is perfectly suited for this application. On the competitor front, we have completed C competitor that customers are using to program APU with . We are in the process of completing competitor to allow customers to run API application and their library in person. Currently, is still in internal use and will be released for general use in July.

Now I will hand the call over to Didier, who will discuss our business performance. Please go ahead, Didi.

Motorola, Phone, Tech, Technology, Gadgets Photo by Jonas Leupe on Unsplash

Didier Lasserre: Thank you, Lee-Lean Shu. 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 20.0% of net revenues compared to $1.9 million or 24.0% 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. SigmaQuad sales were 45.2% of third quarter shipments compared to 40.5% in the third quarter of fiscal 2022 and 58.1% in the prior quarter. Regarding increased production costs, we are evaluating where we can pass on the increased wafer prices that TSMC announced last year, which became effective starting January of this year.

Gemini-1 hardware is now market-ready. We have two board configurations, the leading E which is in production and the leader S, which is an SSD form factor Board and is being finalized today. In the third quarter, we shipped one LiDAboard to potential SAR customer, and we shipped one server to a research institute that will explore Gemini-1 for encryption applications. I’d now like to hand the call over to Doug. Doug, go ahead, please.

Douglas Schirle: Thank you, Didier. We reported a net loss of $4.8 million or $0.20 per diluted share on net revenues of $6.4 million for the third quarter of fiscal 2023 compared to a net loss of $4.6 million or $0.19 per diluted share and net revenues of $8.1 million for the third quarter of fiscal 2022 and a net loss of $3.2 million or $0.13 per diluted share on net revenues of $9 million for the second quarter of fiscal 2023. Gross margin was 57.5% compared to 55.3% in the 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 compared to $9 million in the third quarter of fiscal 2022 and $8.8 million in the prior quarter.

Research and development expenses were $5.5 million compared to $6.2 million in the prior year period and $6.4 million in the prior quarter. Selling, general and administrative expenses were $3 million in the quarter ended December 31, 2022, compared to $2.8 million in the prior year quarter and $2.4 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 and an operating loss of $3.2 million in the prior quarter. Third quarter fiscal 2023 net loss included net interest and other income of $61,000 and a tax provision of $84,000 compared to $15,000 in net interest and other income and a tax provision of $64,000 for the same period a year ago. In the preceding second quarter, net loss included net interest and other income of $14,000 and a tax provision of $37,000.

Total third quarter pretax stock-based compensation expense was $654,000 compared to $740,000 in the comparable quarter a year ago and $661,000 in the prior quarter. At December 31, 2022, we had $35.2 million in cash, cash equivalents and short-term investments and $0 in long-term investments compared to $44 million in cash, cash equivalents and short-term investments and $3.3 million in 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 $54.8 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 million to $5.6 million, with gross margin of approximately 49% to 51%.

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

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