GSI Technology, Inc. (GSIT) Earnings Call Transcript & Summary

Ladies and gentlemen, and thank you for standing by, and welcome to the GSI Technology's Fourth Quarter Fiscal 2024 Financial 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've been advised to advise you that this conference call is being recorded today, May 2, 2024, 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.

Good afternoon, and thank you for joining us today, and let's start with some highlights from our third quarter activities. During the quarter and subsequently, we achieved significant milestones across our key initiatives. First, we launched 2 high-capacity, low-power 1U and 2U servers, integrated with the powerful Gemini-I APU, designed specifically for SAR and the Fast Vector Search applications. These servers can enable mobile applications such as planes and the satellites and will offer enterprise-level processing at edge. In addition, we now have a benchmark on 8 and 16 Leda board for SAR, providing crucial tools for our follow-up efforts with our customers' SAR targets over the past year. We are finalizing marketing materials and plan to begin sales promotion to target the customers by the end of second quarter -- second calendar year quarter. Second, we made considerable progress with shift from the first ping of Gemini-II, presently undergoing rigorous testing and the debugging. The results showcased during the testing was significant for the integration of the chip onto a board. Even a chip mounted on a board has enabled comprehensive performance assessment, the chip can perform the basic function in the processing core and is able to move data within the processing array A01 and A02 local memories. This verifies that the insertion can be successfully executed to the embedding processors and that the data path is also working. So far, we are pleased with the chip's results, which has been better than we anticipated. We aim to conclude the phase by the end of calendar Q2 and then proceed with a second spin. We anticipate receiving the next chip by fall and initiate benchmarking shortly after. This could allow us to begin preliminary customer sampling with expectation of starting alpha testing with target customers before year-end, along with further software development and writing of libraries. Due to the huge model size requirements introduced by large language models, there are many efforts in the AI industry to reduce model size, notably binary neural network and the Bitlet. Those algorithms reduced the model wave to 1 bit or 1.58 bit, instead of a 16 bit and 8 bit in the present models. The reduced wave size release the memory storage requirements and simplify the computation. Thus, simplified computation is especially beneficial to APU architecture over the traditional GPU architecture. GPU architecture are based on higher resolution matrix modification, for computation that is good for higher resolution model size. However, Bitlet and BNN require pooling operation and integer addition for computation instead of a matrix multiplication. APU architecture has Boolean operation and the integer addition as the basic building blocks. That means that APU is well suited for this kind of operations and offers advantage for higher performance and lower power. Our plan with Gemini-II is to target these algorithms and demonstrate to users of BNN and Bitlet that APU can fit a small models entirely into the chip for edge applications. We expect to begin this demonstration early next calendar year once the next spring of the chip becomes available. Another important development since the close of Q4 is the sale and leaseback of our headquarters in Sunnyvale, California. The sale expected to close in early June will provide additional funding to support the finalization of Gemini-II and other R&D projects. Last, our ongoing engagement with the hyperscales continues to show promise. We have received great feedback on how we need to focus on as we start to discuss the design and application for Gemini-III. We are seeking a technical partner for Gemini-III. We are pleased with the progress we have made in our conversations with some potential partners who could provide technology to support the functionality of Gemini-III with high-bandwidth memory. Now I will hand the call over to Didier who will discuss our business performance further. Please go ahead, Didier.

Thank you, Lee-Lean. Starting with fiscal year 2025, I would like to highlight several strategic goals and initiatives we will work on with each of the APU generation. First, we aim to sustain our legacy sales at the current run rate. And now with 2 APU servers available, we're prime to pursue Gemini-I sales, particularly focused on SAR-SaaS solution. It's our intention to achieve the first sales of Gemini-I in the second half of fiscal 2025. With Gemini-II, we are actively writing libraries to develop new applications on the edge or near edge. The second generation of our APU brings significant performance enhancements with more than 10x the processing power with 8x of memory density compared to Gemini-I. Gemini-II offer substantial processing capabilities being suitable for both low-power data center expansion and enabling data center functions at the edge. This empowers the local execution of computational intensive tasks, increasing the edge application capabilities like advanced driver assistance systems for automobiles and HPC in delivery drones, autonomous robots, unmanned aerial vehicles and satellites. Additionally, Gemini-II's memory can hold a small database, a potential door opener for enhanced performance in several applications. One example could be an off-the-shelf facial recognition solution potentially in hardware with on-prem software or SaaS. This fiscal year, we are highly committed to further engaging with potential Gemini-III partners, including customers for the chip and technology partners for HBM integration. Getting partner funding for Gemini-III development is also a key priority. In addition, I am pleased to share that we ship parts for a new prototype for a European Space Agency robotics space mission to intercept a comet. Before I conclude, I'd like to emphasize the key objectives that the GSI team and I are actively pursuing. First, securing sales for Gemini-II; secondly, advancing Gemini -- I'm sorry, securing sales for Gemini-I; advancing Gemini-II for its second iteration, which will enable us to commence customer sampling later this year; and then lastly, actively seeking strategic partnerships for Gemini-III. Achieving these objectives will build awareness of the APU brand, improve our financial standing and position us to enter large, high-growth markets related to AI. Let me close with the customer and product breakdown for the fourth quarter fiscal 2024. Sales in Nokia were $694,000 or 13.5% of revenues compared to $1.2 million or 21.8% of revenues in the same period a year ago and $807,000 or 15.2% of net revenues in the prior quarter. Military/defense sales were 35.5% of fourth quarter shipments compared to 44.2% of shipments in the comparable period a year ago and 28.2% of shipments in the prior quarter. SigmaQuad sales were 42.4% of fourth quarter shipments compared to 46.3% in the fourth quarter of fiscal 2023 and 46.9% in the prior quarter. I'd like to hand the call over to Doug. Doug, go ahead, please.

Thank you, Didier. Before I cover the fourth quarter and full year fiscal 2024 results, I want to reference the business update that was in an earnings release issued today after the market closed. In the press release, we announced that we have initiated a broad strategic review to maximize stockholder value. The review will be administered by a special committee of the Board of Directors to bring focus on strategic alternatives while the company's management focuses on the development of its family of compute and memory solutions for high-performance computing and artificial intelligence. The company plans to consider a wide range of options, including equity or debt financing, divestiture of assets, technology licensing or other strategic arrangements, including the sale of the company. Over the course of the last 8 years, the company has invested approximately $150 million of internally generated capital to develop its novel associated process architecture and build a team of approximately 80 engineers and hardware and software development. The company's Board of Directors is of the opinion that the market has yet to recognize the progress and promise of the company's position. Any actions taken as a result of this strategic review will be directed at driving shareholder value. The company has retained Needham & Company, LLC as our strategic and financial adviser in addressing these alternatives. There can be no assurance that this strategic review process will result in the completion of any transaction. The company has not set a timetable for completion of the strategic review process at this time. Turning to the fourth quarter results. We reported a net loss of $4.3 million or $0.17 per diluted share on net revenues of $5.2 million for the fourth quarter of fiscal 2024 compared to a net loss of $4 million or $0.16 per diluted share on net revenues of $5.4 million for the fourth quarter of fiscal 2023 and a net loss of $6.6 million or $0.26 per diluted share on net revenues of $5.3 million for the third quarter of fiscal 2024. Gross margin was 51.6% in the fourth quarter fiscal 2024 compared to 55.9% in both prior year-end and the appreciating third quarter. The decrease in gross margin in the fourth quarter of 2024 was primarily related due to product mix and the effect of lower revenue on the fixed costs and our cost of revenues. Total operating expenses in the fourth quarter of fiscal 2024 were $7.2 million compared to $6.9 million in the fourth quarter fiscal 2023 and $9.7 million in the prior quarter. Research and development expenses were $4.8 million compared to $5 million in the prior year period and $7 million in the prior quarter. Selling, general and administrative expenses were $2.4 million in the quarter ended March 31, 2024, compared to $1.9 million in the prior year quarter and $2.7 million in the previous quarter. Fourth quarter fiscal 2024 operating loss was $4.5 million compared to an operating loss of $3.9 million in the prior year period and an operating loss of $6.7 million in the prior quarter. Fourth quarter fiscal 2024 net loss included interest and other income of $108,000 and a tax benefit of $85,000 compared to $101,000 in interest and other income and a tax provision of $191,000 for the same period a year ago. In the preceding third quarter, net loss included interest and other income of $155,000 and a tax provision of $71,000. Total fourth quarter pretax stock-based compensation expense was $693,000 compared to $515,000 in the comparable quarter a year ago at $649,000 in the prior quarter. For the fiscal year ended March 31, 2024, we reported a net loss of $20.1 million or $0.80 per diluted share and net revenues of $21.8 million compared to a net loss of $16 million or $0.65 per diluted share, on net revenues of $29.7 million in the fiscal year ended March 31, 2023. Gross margin for fiscal 2024 was 54.3% compared to 59.6% in the prior year. The decrease in gross margin was primarily due to product mix and the effect of lower revenue on the fixed costs and our cost of revenues. Total operating expenses were $32.3 million in fiscal 2024 compared to $33.5 million in fiscal 2023. Research and development expenses were $21.7 million compared to $23.6 million in the prior fiscal year. Selling, general and administrative expenses were $10.6 million compared to $9.9 million in fiscal 2023. The decline in research and development expenses was primarily due to cost reduction measures announced by the company in November 2022. Total operating loss for fiscal 2024 was $20.4 million compared to an operating loss of $15.8 million in the prior year. The fiscal 2024 net loss included interest and other income of $414,000 and a tax provision of $70,000 compared to $202,000 in interest and other income and a tax provision of $372,000 in the prior year. In March, we had $14.4 million in cash and cash equivalents compared to $30.6 million in cash, cash equivalents and short-term investments on March 31, 2023. Working capital was $19.1 million as of March 31, 2024, versus $34.7 million on March 31, 2023, with no debt. Stockholders' equity as of March 31, 2024, was $36 million compared to $51.4 million as of the end of the fiscal ended March 31, 2023. Concluding with the outlook for the first quarter of fiscal 2025, we anticipate net revenues in the range of $4.6 million to $5.2 million, with gross margin of approximately 52% to 54%. Operator, at this call, we'd like to open the call to Q&A.

[Operator Instructions] And presenters, I don't see any questions at this time. I would now like to turn the call over to CEO, Lee-Lean Shu for closing remarks.

Thank you all for joining us. Please check out my recent published article in Forbes, The Untold Story of AI's Huge Carbon Footprint. You can find it on Forbes website at forbes.com. We look forward to speaking with you again when we report our first quarter fiscal 2025 results. Thank you.

Thank you so much, ladies and gentlemen. This includes today's conference call. Thank you for listening. You may now disconnect. Have a great day.