GSI Technology Q4 2024 Earnings Call Transcript

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May 2, 2024

There are 4 speakers on the call.

Operator

Ladies and gentlemen, and thank you for standing by, and welcome to the GSI Technologies 4th Quarter Fiscal 20 24 Financial Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and will provide instructions for those interested in entering the queue for the Q and A. 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.

Operator

These risks and uncertainties are described in the company's Form 10 ks 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 Li Lin Shu, the company's Chairman, President and Chief Executive Officer. With him are Douglas Shirley, Chief Financial Officer and Didier Lycerra, Vice President of Sales. I would now like to turn the conference over to Mr.

Operator

Xu. Please go ahead, sir.

Speaker 1

Good afternoon and thank you for joining us today. Let's start with some highlights from our Q4 activities. During the quarter and subsequently, we achieved significant milestones across our key initiatives. 1st, we launched 2 high capacity, low power 1U and 2U servers integrated with the powerful Gemini 1 APU designed specifically for SaaS and the fast vector search applications. This service can enable mobile applications such as the edge.

Speaker 1

In addition, we now have a benchmark on 8 and 16 meter boards for SAAR, providing crucial tools for our follow-up efforts with SAAR customers, SAAR targets over the past year. We are finalizing marketing materials and plan to begin sales promotion to target the customers by the end of the 2nd quarter 2nd calendar year quarter. 2nd, we made considerable progress with shift from the first string of Gemini 2, presently undergoing rigorous testing and the debugging. The results showcased during the testing was significant for the integration of the chip onto a board. Having the 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 between the processing array and the AL1 and AL2 local memories.

Speaker 1

This very fact that the instruction can be successfully executed through the embedding processor and that the data path is also working. So far, we are pleased with the chip's result, which has been better than we anticipated. We aim to conclude the phase by the end of calendar Q2 and then proceed with the 2nd spin. We anticipate receiving the next trip by 4 and initiate the benchmarking shortly after. This could allow us to begin preliminary customer sampling with the expectation of starting alpha testing with target customers before year end along with further software development and the writing of libraries.

Speaker 1

Due to the huge model size requirement introduced by large language models, there are many efforts in the AI industry to reduce model size, loadable binary neural network and the bit led. Those algorithms reduce the model width to 1 bit or 1.58 bit instead of 16 bit and 8 bit in the present models. The reduced wave size, reduce the memory storage requirement and simplify the computation. Thus, simplify the computation is especially beneficial to APU architecture over the traditional GPU architecture. GPU architectures are based on high resolution metric modification, both computation that is good for high resolution model size.

Speaker 1

However, bitlet and the BNN require Boolean operation and integer addition for computation instead of a major modification. APU architecture has a pooling operation and the integer addition as the basic building blocks. That means that APU is well suited for this kind of operation and offers advantage for higher performance and lower power. Our plan with Gemini 2 is to target these algorithms and demonstrate to users of BNN and the bit less that APU can fit the small model entirely into the chip for edge applications. We expect to begin this demonstration early days calendar year once the next spring of the chip becomes available.

Speaker 1

Another important development since the close of Q4 is the sale and dispatch of our headquarters in Sunnyvale, California. The sale expected to close in early June will provide additional funding to support the finalization of Gemini 2 and other R and D projects. Last, our ongoing engagement with the hyperscale continues to show promise. We have received great feedback on what we need to focus on as we start to discuss the design and application for Gemini 3. We are seeking a technical partner for Gemini 3.

Speaker 1

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 GMS3 with high bandwidth memory. Now, I will hand the call over to Didier, who will discuss our business performance further. Please go ahead, Didier.

Speaker 2

Thank you, Lyleen. Starting with fiscal year 2025, I would like to highlight several strategic goals and initiatives we will work on with each of the APU generations. First, we aim to sustain our legacy sales at the current run rate and now with 2 APU servers available, we're primed to pursue Gemini 1 sales, particularly focused on SAR SaaS solution. It's our intention to achieve the first sales of Gemini 1 in the second half of fiscal twenty twenty five. With Gemini 2, we are actively writing libraries to develop new applications on the edge or near edge.

Speaker 2

The 2nd generation of our APU brings significant performance enhancements with more than 10x the processing power with 8x the memory density compared to Gemini 1. Gemini 2 offers 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 task, increasing the edge application capabilities like advanced driver assistance systems for automobiles and HPC and delivery drones, autonomous robots, unmanned aerial vehicles and satellites. Additionally, Gemini 2'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.

Speaker 2

This fiscal year, we are highly committed to further engaging with potential Gemini 3 partners, including customers for the chip and technology partners for HBM integration. Getting partner funding for Gemini 3 development is also a key priority. In addition, I am pleased to share that we shipped parts for a new prototype for a European Space Agency robotic space mission to intercept a comment. Before I conclude, I'd like to emphasize the key objectives that GSI that the GSI team and I are actively pursuing. 1st, securing sales for Gemini 2 secondly, advancing Gemini I'm sorry, securing sales for Gemini 1 advancing Gemini 2 for its 2nd iteration, which will enable us to commence customer sampling later this year And then lastly, actively seeking strategic partnerships for Gemini 3.

Speaker 2

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 Q4 quarter fiscal 2024. Sales to Nokia were $694,000 or 13.5 percent of revenues compared to $1,200,000 or 21.8 percent of revenues in the same period a year ago and $807,000 or 15.2 percent of net revenues in the prior quarter. Military defense sales were 35.5 percent of 4th quarter shipments compared to 44.2% of shipments in the comparable period a year ago and 28.2% of shipments in the prior quarter. Sumequest sales were 42.4 percent of 4th quarter shipments compared to 46.3% in the Q4 of fiscal 2023 46.9 percent in the prior quarter.

Speaker 2

I'd like to hand the call over to Doug. Doug, go ahead please.

Speaker 3

Thank you, DDA. Before I cover the Q4 and full year fiscal 2024 results, I want to reference the business update that was in 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.

Speaker 3

Over the course of the last 8 years, the company has invested approximately $150,000,000 of internally generated capital to develop its novel associative processor architecture and build a team of approximately 80 engineers in 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 the strategic review redirected at driving shareholder value. The company has retained Nedimin Company LLC as our strategic and financial advisor in addressing these alternatives. There can be no assurance that this strategic review process will result in the completion of any transaction.

Speaker 3

The company has not set the timetable for completion of the strategic review process at this time. Turning to the 4th quarter results. We reported net loss of $4,300,000 or $0.17 per diluted share on net revenues of $5,200,000 for the Q4 of fiscal 2024 compared to a net loss of 4,000,000 dollars or $0.16 per diluted share on net revenues of $5,400,000 for the Q4 of fiscal 2023, and a net loss of 6,600,000 or $0.26 per diluted share from net revenues of $5,300,000 for the Q3 of fiscal 2024. Gross margin was 51.6 percent in the Q4 fiscal 2024 compared to 55.9% in both prior year end and the preceding Q3. The decrease in gross margin in the Q4 of 2024 was primarily related to due to product mix and the effect of lower revenue and the fixed costs and our cost of revenues.

Speaker 3

Total operating expenses in the Q4 of fiscal 2024 were $7,200,000 compared to $6,900,000 in the 4th quarter fiscal 2023 $9,700,000 in the prior quarter. Research and development expenses were $4,800,000 compared to $5,000,000 in the prior year period and $7,000,000 in the prior quarter. Selling, general and administrative expenses were $2,400,000 in the quarter ended March 31, 2024, compared to $1,900,000 in the prior year quarter and $2,700,000 in the previous quarter. 4th quarter fiscal 2024 operating loss was $4,500,000 compared to an operating loss of $3,900,000 in the prior year period and an operating loss of $6,700,000 in the prior quarter. 4th 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.

Speaker 3

In the preceding Q3, net loss included interest and other income of $155,000 and a tax provision of $71,000 Total 4th quarter pre tax stock based compensation expense was $693,000 compared to $515,000 in the comparable quarter a year ago and $649,000 in the prior quarter. For the fiscal year ended March 31, 2024, we reported a net loss of $20,100,000 or $0.80 per diluted share, a net revenues of $21,800,000 compared to net loss of $16,000,000 or $0.65 per diluted share on net revenues of $29,700,000 in the fiscal year ended March 31, 2023. Gross margin for fiscal 2024 was 54.3% 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 fixed costs and our cost of revenues. Total operating expenses were $32,300,000 in fiscal 2024 compared to $33,500,000 in fiscal 2023.

Speaker 3

Research and development expenses were $21,700,000 compared to $23,600,000 in the prior fiscal year. Selling, general and administrative expenses were $10,600,000 dollars compared to $9,900,000 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 20,400,000 dollars compared to an operating loss of $15,800,000 in the prior year. The fiscal 2024 net loss included interest and other income of 400 and $14,000 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.

Speaker 3

At March, we had $14,400,000 in cash and cash equivalents compared to $30,600,000 in cash, cash equivalents and short term investments at March 31, 2023. Working capital was $19,100,000 as of March 31, 2024 versus $34,700,000 at March 31, 2023 with no debt. Stockholders' equity as of March 31, 2024 was $36,000,000 compared to $51,400,000 as of the end of the fiscal ended March 31, 2023. Concluding with the outlook for the Q1 of fiscal 2025, we anticipate net revenues in the range of $4,600,000 to $5,200,000 with gross margin of approximately 52% to 54%. Operator, at this call, we'd like to open the call to Q and A.

Operator

Thank you, presenters. And ladies and gentlemen, we will now begin the question and answer session. And presenters, I don't see any questions at this time. I would now like to turn the call over to our CEO, Li Lin Xu for closing remarks.

Speaker 1

Thank you all for joining us. Please check out my recent published article in Forbes, The Untold Story of AI Huge Carbon Footprint. You can find it on the Forbes website atfors.com. We look forward to speaking with you again when we report our Q1 fiscal 2025 results. Thank you.

Operator

Thank you so much. Ladies and gentlemen, this concludes today's conference call. Thank you for listening. You may now disconnect. Have a great day.

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