GSI Technology, Inc. (NASDAQ:GSIT) Q2 2024 Earnings Call Transcript

GSI Technology, Inc. (NASDAQ:GSIT) Q2 2024 Earnings Call Transcript October 26, 2023

Operator: Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology’s Second Quarter Fiscal 2024 Results Conference Call. [Operator Instructions] 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 Technology that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company’s Form 10-K filed with the Securities and Exchange Commission. Additionally, I have also been asked to advise you that this conference call is being recorded today, October 26, 2023, at the request of GSI Technology.

Hosting the call today is Lee-Lean Shu, the company’s Chairman, President and Chief Executive Officer. With him are Douglas Schirle, Chief Financial Officer; and Didier Lasserre, Vice President of Sales. I would now like to turn the conference over to Mr. Shu. Please go ahead, sir.

Lee-Lean Shu : Good afternoon, and thank you for joining us to review our second quarter fiscal 2024 financial results. I am pleased to share that we have achieved two significant milestones since we reported Q1 2024 earnings. First, was the successful launch of the alpha version of our Copperhead compiler suite, a Python-based tool that can harness the capabilities of the Gemini APU. We anticipate releasing the general release of the Copperhead compiler suite in early 2024. A full production version will be available later in 2024. Currently, we have partners learning, using and developing algorithms with our compiler, including SWAC, a consortium of universities and the companies developing these generation technology for space and academic research group, exploring the future of computing architecture, like MIT and the University of California, Riverside.

The second milestone was the completion of the Gemini-II tape-out, which were launched last week. As a result, we are on track to have the chip back in our hands early next calendar year as we expect to begin sampling the device in the second half of 2024. We are targeting Gemini-II partners and customers in low-power data center expansions and enabling data center functions at edge. Example of edge applications could include advanced driver assistance systems and XAG in delivery drone, autonomous robots, unmanned aerial vehicle and satellite. Turning to our financial results for the second quarter. Revenue of $5.7 million was at the high end of our guidance. Also it’s worth noting that our second quarter fiscal year 2023 revenue was boosted by inventory builds with several key customers, which presents a challenging year-over-year comparison.

In addition to advancing the table of Gemini-II, a significant area of recent focus has centered around our ongoing engagement with the key hyperscaler partner. I’m delighted to report that these discussions are making notable progress. To our constructive dialogue with this leading cloud computing provider, we have gained invaluable insights into the precise design specification required for Gemini-III to align with the early requirement. This collaborated effort has enabled us to charge [indiscernible], while identifying potential partners who can bring the essential financial and engagement — engineering resource to the table for the successful development, manufacturing and the launch of Gemini-III. The evolution will leverage the conversion of high-bandwidth memory into APU architecture, thereby harness the full potential of in-memory compute advantage.

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

Didier Lasserre: Thank you, Lee-Lean. Following up on the projects I mentioned last quarter, throughout the second quarter of fiscal 2024, our team continued to pursue opportunities with Gemini-I to advance our customer engagements. Currently, GSI has a fast vector search plug-in available that allows cloud vector search users to seamlessly add APU-accelerated search to their major cloud-provided hosted workloads, with minimal latency from GSI’s hosted data centers. This FVS plug-in provides accelerated approximate nearest neighbor search response times, enabling access to a large enterprise service at low power that also meets price points for small- and medium-sized businesses. This will be opening up larger markets for us.

Switching to our SAR opportunities. Due to customer feedback, we have decided to launch or low-powered, highly efficient SAR processing as a SaaS offering, along with, of course, also the on-prem version. We are now engaging to bring that service to market. Moreover, we favorably completed benchmarking on a customer’s data set. One target we are engaged with a start-up building satellites that can provide computational capabilities on satellites and space has identified the Gemini APU as its preferred provider for computing solutions for space. The big differentiator, in addition to low-power performance, is the product’s radiation-tolerant feature. On that note, we will be conducting full radiation tolerant testing on Gemini-I next month. By this, I mean, the full range of tests required for customers considering using Gemini-I in space.

A lab technician inspecting intricate SEM micrographs of semiconductor interconnects.

One of the applications for that radiation tolerant Gemini-I would be ideally suited for SAR and ATR, which is automatic target recognition, and computing and space to name a few. This summer, we announced that GSI was awarded an SBIR to contract — I’m sorry, an SBIR contract to perform a feasibility study to adapt Gemini-II to perform computing at the edge in collaboration with the U.S. Air Force and space force. We are currently working on a second SBIR based on the Gemini-II software development, which is very promising and potentially, a similar financial award as the first win. We continue to file more SBIR as they bring two key benefits: number one, a source of revenue, and they also create use cases within the U.S. government for future APU opportunities.

Let me switch now to customer and product breakdowns for the second quarter. In the second quarter of fiscal 2024, sales to Nokia were $1.2 million, or 20.3% of net revenues, compared to $1.2 million, or 13.6% of net revenues in the same period a year ago, and $1.9 million, or 33.5% of net revenues in the prior quarter. Military defense sales were 34.8% of second quarter shipments compared to 22.4% of shipments in the comparable year — I’m sorry, comparable period a year ago and 33.8% of shipments in the prior quarter. SigmaQuad sales were 55.8% of second quarter shipments compared to 58.1% in the second quarter of fiscal 2023 and 58.6% in the prior quarter. I would like now to hand the call over to Doug. Go ahead, Doug.

Douglas Schirle: Thank you, Didier. We reported a net loss of $4.1 million or $0.16 per diluted share on net revenues of $5.7 million for the second quarter of fiscal 2024 compared to 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 and a net loss of $5.1 million or $0.21 per diluted share on net revenues of $5.6 million for the first quarter of fiscal ’24. Gross margin was 54.7% compared to 62.6% in the prior year period and 54.9% in the preceding first quarter. The changes in gross margin were primarily due to changes in product mix sold in the three periods. Total operating expenses in the second quarter of fiscal 2024 were $7.2 million compared to $8.8 million in the second quarter of fiscal 2023 and $8.2 million in the prior quarter.

Research and development expenses were $4.7 million compared to $6.4 million in the prior year period and $5.2 million in the prior quarter. Selling, general and administrative expenses were $2.5 million in the quarter ended September 30, 2023, compared to $2.4 million in the prior year quarter and $3 million in the previous quarter. Second quarter fiscal 2024 operating loss was $4.1 million compared to $3.2 million in the prior year period and $5.1 million in the prior quarter. Second quarter fiscal 2024 net loss included interest and other income of $71,000 and a tax provision of $33,000 compared to interest and other income net of $14,000 and a tax provision of $37,000 for the same period a year ago. In the preceding first quarter, net loss included interest and other income net of $80,000 and a tax provision of $51,000.

Total second quarter pretax stock-based compensation expense was $676,000 compared to $661,000 in the comparable quarter a year ago and $820,000 in the prior quarter. At September 30, 2023, the company had $25.3 million in cash, cash equivalents and short-term investments compared to $30.6 million in cash, cash equivalents and short-term investments March 31, 2023. Working capital was $28.8 million as of September 30, 2023, versus $34.7 million at March 31, 2023, with no debt. Stockholders’ equity as of September 30, 2023, was $45.4 million compared to $51.4 million as of the fiscal year ended March 31, 2023. Given the current global economic environment, our current expectations for the upcoming third quarter are net revenues in the range of $5.4 million to $6.2 million, with gross margin of approximately 55% to 57%.

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

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Q&A Session

Operator: [Operator Instructions] Our first question comes from Brett Reiss with Janney Montgomery Scott.

Brett Reiss : Until corporate initiatives gain traction, how — can you just comment on cash burn rates? How long do you think the cash will last without you having to do some sort of financing?

Douglas Schirle: Yes. We’ve taken a look at that. We typically take a look at it every quarter. And if nothing improves, which we don’t expect, we have cash that should last at least a couple of years at this point.

Brett Reiss : And if I may just follow up, what do you think your burn will be for this following year?

Douglas Schirle : This year we’ll be around $13 million to $14 million. Yes, we have one kind of extraordinary expense coming up this fiscal year that requires about $2.4 million cash outlay. And that’s for the mask set for the Gemini-II product that just taped out that Lee-Lean previously mentioned today. That’s somewhat of an irregular occurrence that only happens every few years.

Operator: [Operator Instructions] Our next question comes from the line of Orin Hirschman with AIGH Investment Partners.

Orin Hirschman : Can you can you give us a little bit more color on — is the data center customer interested in Gemini-II for any purpose or only Gemini-III? Have they played with Gemini-I to understand it better? And what is attracting them to the Gemini architecture? And I have one follow-up.

Didier Lasserre : Okay. So let me start with that. So with the hyperscaler, we’re engaged with. And we’ve had when — we’ve had ongoing discussions with, and we’ve since opened up other discussions with other hyperscalers. Certainly, as Lee-Lean mentioned in his earlier comments, the information we gathered from our first engagement was instrumental to be able to sharp our story and our offering for future hyperscale conversations. And so what they’re — interested right now would be a next-generation, specifically, something we’ll call Gemini-III for now. Because that one is going to really be geared towards GenAI or the LLM models. With that said, as you know, these hyperscalers are very large companies. And so certainly, Gemini-II is certainly not out of play with them, it just wouldn’t be the solution specifically for the GenAI conversations we’re having.

Orin Hirschman : And in terms of other hyperscalers and data center customers, it sounds like there’s some level of progress. How would you characterize it? Have people played with benchmarks yet for any of them? I think would be an important point to note if it’s true if you’ve gotten that far.

Didier Lasserre : Correct. And so what we’ve done is we’ve shown obviously the technology with Gemini-I because silicon is here. Software is here. We can run true benchmarks. We’ve then obviously run expected benchmarks off of Gemini-II. And so going back, and I just remember what part of your earlier question was, what’s interesting about our technology to them? So there’s certainly a few areas. Obviously, the performance is important to them. But the low power has certainly grabbed their eye. And also other features like the fact that we’re a bit processor. This is very important to a lot of these folks because right now, if they’re using a GPU, they’re really locked into — depending on the GPU 8-bit or 16-bit, 32-bit or 64-bit kind of traffic patterns.

We’re a bit processor. And so we don’t care what your traffic looks like. It can be 4 bit. It can be 64 bit. It can be — make up a number of 1,000 bit, and we can adapt to that on the fly and cycle to cycle. And so that flexibility is also very important to them.

Orin Hirschman : In real life, there’s been a lot of talk about a very bit type of super processor in the literature. And obviously, no one’s really had one commercially where it’s programmable in that fashion. Are you programmable today in that fashion, number one. Number two, is what are some of the applications where that becomes so enticing?