GSI Technology Q2 2024 Earnings Call Transcript

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October 26, 2023

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology's 2nd Quarter Fiscal 20 24 Results Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session. At that time, we will provide instructions for those interested in entering the queue for the Q and A.

Operator

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 ks filed with 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 Li Lin Shu, the company's Chairman, President and Chief Executive Officer.

Operator

With him are Douglas Scheuerle, Chief Financial Officer and Didier Lazare, Vice President of Sales. I would now like to turn the conference over to Mr. Xu. Please go ahead, sir.

Speaker 1

Good afternoon, And thank you for joining us to review our Q2 fiscal 2024 financial results. I am pleased to share that we have achieved 2 significant milestones since we reported Q1 2024 earnings. First was the successful launch of the Ava 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 cover head competitor suite in early 2024. The full production versions will be available later in 2024.

Speaker 1

Currently, we have partners learning, using and developing algorithms with our compiler, including SREC, a consortium of universities and companies developing next generation technology for space and academic research group exploring the future of computing architecture like MIT and the University of California, Riverside. The 2nd milestone was the completion of the Gemini 2 table, which we were launched last week. As a result, we are on track to have the chip back in our hand early this calendar year We expect to begin sampling the device in the second half of twenty twenty four. We are targeting GMLI2 partners and the customers in low power data center extension and enabling data center functions at edge. Example of edge application could include advanced driver assistance systems End HCC in delivery drones, autonomous robots, unmanned aerial vehicle and satellite.

Speaker 1

Turning to our financial results for the Q2. Revenue of $5,700,000 was at the high end of our guidance. Also, it's worth noting that our Q2 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 2, a significant area of recent focus has centered Our 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 requires for Gemini 3 to align with their requirements.

Speaker 1

This collaborative effort has enabled us to chart a roadmap by identifying potential partners who can bring the essential financial engagement and engineering results to the table for the successful development, Manufacturing and the launch of JEMEA 3, the evolution will leverage the incorporation of high bandwidth memory into APU architectures, thereby harness the full potential of e memory compute advantage. 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. Following up on the projects I mentioned last quarter, throughout the Q2 of fiscal 2024, our team continued to opportunities with GeminiOne 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.

Speaker 2

Switching to our SAAR opportunities, Due to customer feedback, we have decided to launch our 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 startup building satellites that can provide computational 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 1 next month.

Speaker 2

By this, I mean the full range of tests required for customers considering using Gemini 1 in space. 1 of the applications for that radiation tolerant Gemini 1 would be ideally suited for SAR and ATR, which is automatic target recognition and excuse me, 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 2 to perform computing at the edge in collaboration with the U. S. Air Force and Space Force.

Speaker 2

We are currently working on a second SBIR based on the Gemini 2 software development, which is very promising and potentially a similar financial award as the first win. We continue to file more SBIRs as they bring 2 key benefits. Number 1, a source of revenue and they also create use cases within the U. S. Government for future APU opportunities.

Speaker 2

Let me switch now to customer and product breakdowns for the Q2. In the Q2 of fiscal 2024, sales to Nokia were $1,200,000 or 20.3 percent Our net revenues compared to $1,200,000 or 13.6 percent of net revenues in the same period a year ago and $1,900,000 or 33.5 percent of net revenues in the prior quarter. Military defense sales were 34.8 Percent of 2nd 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 percent of 2nd quarter shipments compared to 58.1% in the Q2 of fiscal 202358.6% in the prior quarter. I would like now to hand the call over to Doug.

Speaker 2

Go ahead, Doug.

Speaker 3

Thank you, DDA. We reported a net loss of $4,100,000 or $0.16 per diluted share on net revenues of $5,700,000 for the Q2 of fiscal 2024, compared to a net loss of $3,200,000 or $0.13 per diluted share of net revenues of $9,000,000 for the Q2 of fiscal 2023 And a net loss of $5,100,000 or $0.21 per diluted share, our net revenues of $5,600,000 for the Q1 of fiscal 2024. Gross margin was 54.7% compared to 62.6% in the prior year period and 54.9% in the preceding Q1. The changes in gross margin were primarily due to changes in product mix sold in the three periods. Total operating expenses in the Q2 2024 were $7,200,000 compared to $8,800,000 in the Q2 of fiscal 2023 and $8,200,000 in the prior quarter.

Speaker 3

Research and development expenses were $4,700,000 compared to $6,400,000 in the prior year period and $5,200,000 in the prior quarter. Selling, general and administrative expenses were $2,500,000 in the quarter ended September 30, 2023 compared to $2,400,000 in the prior year quarter and $3,000,000 in the previous quarter. 2nd quarter fiscal 2024 operating loss was $4,100,000 compared to $3,200,000 in the prior year period and $5,100,000 in the prior quarter. 2nd 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 Q1, the net loss included Interest and other income net of $80,000 and a cash provision of $51,000 Total second quarter pre tax 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.

Speaker 3

At September 30, 2023, the company had $25,300,000 in cash, Cash equivalents and short term investments compared to $30,600,000 in cash, cash equivalents and short term investments March 31, 2023. Working capital was $28,800,000 as of September 30, 2023 versus $34,700,000 at March 31, 2023 with no debt. Stockholders' equity as of September 30, 2023 was $45,400,000 compared to $51,400,000 as of the fiscal year ended March 31, 2023. Given the current global economic environment, our current expectations for the upcoming Q3 Our net revenues in the range of $5,400,000 to $6,200,000 with gross margin of approximately 55% to 57%. Operator, at this point, we would like to open the call to Q and A.

Operator

Thank you. Ladies and gentlemen, we will now be conducting a question and answer session. It may be necessary to pick up your handset before pressing the star keys. Our first question comes from Brett Ries with Janney Montgomery Scott. Please go

Speaker 4

ahead. Yes. Hi. Thanks for taking the question. Until corporate initiatives gain traction, how can you just comment on cash burn rates?

Speaker 4

How long do you think the cash will last without you having to do some sort of financing?

Speaker 3

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.

Speaker 4

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

Speaker 3

This year will be around $13,000,000 to $14,000,000 Yes, we have one kind of extraordinary expense coming up this fiscal year that It requires about $2,400,000 cash outlay and that's for the mask set for the Gemini 2 product that just taped out that Leland previously mentioned today. That's somewhat of an irregular occurrence. It only happens every few years.

Speaker 4

Okay. Thank

Operator

you. Thank Our next question comes from the line of Oren Harshman with AIGH Investment Partners. Please go ahead.

Speaker 5

Hi, how are you? Good. Thank God. Can you give us a little bit more color Is the data center customer interested in Gemini 2 for any purpose or only Gemini 3? Have they played with GeminiOne to understand them better?

Speaker 5

And what is attracting them It's the Gemini architecture.

Speaker 3

Sure.

Speaker 6

And I

Speaker 5

have one follow-up.

Speaker 2

Okay. So let me start with that. So with the hyperscaler we're engaged with and we've had one we've had ongoing discussions with and we've since opened up other discussions with other hyperscalers. Certainly, as Wylene mentioned in his earlier comments, the information we gathered from our first engagement was instrumental to be able to Sure. Our story in our offering for future hyperscale conversations.

Speaker 2

And so what they're interested right now is, it would be a next generation, Specifically, something we'll call Gemini 3 for now because that one's going to really be geared towards Gen AI or the LLM models. With that said, as you know, these hyperscalers are very large companies. And Certainly, Gemini 2 is certainly not out of play with them. It just wouldn't be the solution specifically for the GenAI Conversations we're having.

Speaker 5

And in terms of other Hyperscalers and data center customers, it sounds like there's some level of progress. How would you Characterized as have people played with benchmarks yet for any of them that I think would be an important point to note if it's true if you've gotten that far?

Speaker 2

Correct. And so what we've done is we've shown obviously the technology with GeminiOne because Silicon is here, software is here, we can run true benchmarks. We've then obviously run expected benchmarks off of Gemini 2. And so going back, 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.

Speaker 2

Obviously, the performance is important to them. But the low power is 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.

Speaker 2

It can be 4 bit. It can be 64 bit. It can be make up a number 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.

Speaker 5

In real life, there's been a lot of talk about a variable bit type of super processor In the literature, obviously, no one's really no one's really had one commercially where it's programmable in that fashion. And are you programmable today in that fashion, number 1? Number 2 is what are some of the applications where that becomes so enticing?

Speaker 2

So you're talking about the BIP processing? Yes. Yes. So there's a lot of research going on right now. And they're finding out that some efficiencies aren't coming in like the expected 16 bit and 32 bit.

Speaker 2

As I mentioned, 5 bit was one that came up recently and candidly, I don't remember the exact application or the research on that. But 5 bit was one of them that was important. And so one of the benefits with this bit processing is that, As our customers told us, we're future proof. And what I mean is, if there is an application that comes in that needs 5 bit, we're there. If there's one that needs 128 bit, 256 bit, we're there.

Speaker 2

We don't have to redesign our part to be able to address those needs because The fact that we have 2,000,000 bit processors on our Gemini 1 and they can work As one bid or make up a number between $1,000,000 $2,000,000 And so we're future proof in that respect, which is obviously eye opening to them.

Speaker 1

Yes. Just a comment. Right now the Jinai, the large language model is a very, very big model. It's a very, very memory intensive application. So they will lead a very big memory, they will lead a very fast memory.

Speaker 1

So the effort one of the effort is they try to reduce the data format. If you have less number of bit to calculate, then you require less memory, you require less memory throughput. Okay. So we have a discrete processing capability, which you can just like Didi mentioned 5 bit, 4 bit, 3 bit, 2 bit, We will be there. And with this is we have more capability to keep up with the software innovation.

Speaker 1

And that's what some of the customers like us about this issue.

Speaker 5

And just going back to benchmarking, have you done benchmarking for some of the Data center and hyperscaler customers?

Speaker 2

So candidly, most of the benchmarking we've done have been based Essentially off of POCs, where customers have come in and said, this is what I'm using, here's my data set, what do your numbers look like? And so we've done real Life case POCs, we've done that for one of our Israeli customers that we talked about and then also one of our recent SAAR customers. As far as broad market benchmarking, we haven't done a lot, but we know that's And that's something that's on our agenda to start doing. It's just been a resource issue for us to be able to make that happen. But we understand it's important and that's what we're next

Speaker 5

Let's see, 2 more questions if I may and then I'll let other people ask. So in terms of Proof of concept using customer data, have any of the hyperscalers given you data sets to actually show them what you can and can't do with it?

Speaker 2

No. These are other applications. These have been SAR applications and other applications. The hyperscalers, no, because as I mentioned, the discussions early on have been revolving around this next generation device. And so We've given them we have given them benchmarking of what we anticipate we could do absolutely, but they're not true benchmarks.

Speaker 2

They're calculated benchmarking.

Speaker 5

Okay. And last question just on the you mentioned So you're using the processor as a service for the people's data and you had some early tests Going back a while ago and that needed to be revamped for some additional APIs, where are you up to with any of the potential customers Offering it as a plug in or anything like that?

Speaker 2

Yes. So there's 2 areas that we're focusing the SaaS on, Fast Vector Search And SAAR. And as I mentioned in my comments earlier, the SAAR was after discussions with 1 of the folks that we're talking to in that area. So we have an on prem solution, which for some of their customers is needed. And then obviously, one of the guys we're talking to wants to put this capability on the satellite.

Speaker 2

So that would be a physical sale as well. But right now most of their production they're doing is via SaaS over AWS using GPU And so that's when we after discussing with them that's something that we looked at and so that obviously made sense for us to do. So we're opening up the SAAR For that, the fast vector search we've been putting in place, we're still doing some benchmarking internally for some of the fast vector search databases, guys like Weave. And so that's an ongoing project for us.

Speaker 5

And in terms of trying to get that FastFactor Search is a plug in so that customers could actually play with it through AWS or something like that. Any progress there?

Speaker 2

There is I'm trying to understand what I can see there. So we had we've had some discussions Integrate easier into their system right now. And so those discussions have been happening over the last couple of weeks. And then certainly, once those get Worked out then we'll be able to have a smoother offering right now. Because as you know right now it's we're basically They're offloading the searches off to our data center that we have put into a facility called CoreSite.

Speaker 2

And so we're trying to streamline that offering.

Speaker 5

Okay. Thanks so much.

Speaker 2

Thanks, Oren.

Operator

Thank you. Our next question comes from the line of Luc Berenner, an investor. Please go ahead.

Speaker 6

Hi. To zoom out from parsing the applications and the prospects for various partnerships. Could we assume that when Gemini 1 hits the scene and you all are able to offer that to be tooled Yes, by various users, will that outperform a large swath of the current high Computer offerings that are on the market, including the leaders of NVIDIA, AMD, Samsung, even Google, custom chips. Yes. Is that safe to say?

Speaker 2

So okay. So I'm trying to follow your question here. So first of all, do have Gemini 1 already, so I'm assuming you were referring to Gemini 2.

Speaker 6

Gemini 2, correct.

Speaker 1

Yes.

Speaker 2

Yes. And So Gemini 2 and then you also mentioned a custom chip. So Gemini 2 is not a custom chip. So Gemini 2 is going to be a standard offering, that we're going to have. And so, and so, yes, obviously, we've done some calculated benchmarkings, which have looked very favorable.

Speaker 2

And once we have the chip in hand, As Yleen said, we'll have it in hand early next year and it's probably going to take at least a spend to really get something we So it will be around summertime before we can do true benchmarking. But yes, we anticipate them to be very favorable Over what we have and what's in the market space. Now but I do want to add to the comment, you said custom chip. So one of the things and we've mentioned this in the past that we're also looking to do is obviously offer IP sales as well Because we do understand we have a unique technology, but we also understand that certainly we'll start with the hyperscalers. They do a lot of their own custom silicon.

Speaker 2

And so one of the conversations that we're having with the hyperscalers besides talking about Gemini 3 For the Genais, we're also talking about IP sales as well for any custom basics that they're doing on their own. So You asked a lot of questions in there. I'm hoping I hit all the topics.

Speaker 6

Yes, that does It kind of answers the two implications there that Gemini 2 will be a compelling competitor and Depending on how you're able to benchmark it or how much tooling or rendering it requires via IP or via the actual that chip directly, But that it will, yes, essentially at 16 nanometers be competing toe to toe or even, yes, clearly out competing a lot of these 5 nanometer, yes, leading high performance chips. Right. That's what I gathered, yes, from everything you all put out.

Speaker 2

If you recall, GeminiOne, the benchmarking we've done in have been very positive against what's out there today. Now with Gemini 2, as we discussed in the past, it has 10 times the performance and 8 times The L1 memory on chip, so it's certainly going to be something that's going to be very compelling for the market.

Speaker 6

Excellent. All right. Yes, eager for it. Thank you. That's all I had.

Speaker 2

Thanks Luke.

Operator

Thank you. Our next question comes from George Gasper, an investor. Please go ahead.

Speaker 7

Yes. Thank you. Could you go into a little additional information for us on The military and defense applications and the interconnect that the company has had in Israel Over the years, in fact, initially, the whole Gemini approach came out of there. And considering what's going on in space, is there some broader applications For the advancements that you're making going into space and is what's happening in with Israel right now In terms of this situation in the Middle East, is there are you seeing anything happen that could create a more military related effort?

Speaker 2

Okay. So let me see. Let me try and get all those questions now. So let's start with the military. So yes, there are a lot of different possible use cases with the military, which is also why we've had some successes recently with these SBIRs that we've been filing.

Speaker 2

So some of the interest that we've seen have From like we'll call the mill arrow kind of area is certainly SAR for sure. Object detection is another, automatic target recognition another. We've also been for imaging as well for change detection. And also one of the customers that we're engaged with, in fact they have 2 of our servers on loan that they're doing demonstrations with is They want to start putting data centers in space. And so that's another just a standard data center application in space.

Speaker 2

And so that's another one. As far as the I'm not sure with the Israel side. So as you say, this original technology Was an acquisition we made and the company was out of Israel. But I'm not sure what the question was revolving around that acquisition.

Speaker 7

Well, basically, just as a reference, I mentioned it. But considering what's going on in The Middle East right now and the connections that the company has had with Israel, I would think that there would be an attempt to try to get some Applications moving forward to give Israel more recognition in how they're trying to Monitor things, is that

Speaker 6

Yes. So we have had

Speaker 2

some discussions obviously with Mafat that we've talked about in the past and other entities there on several applications. I won't go into Exact detail, but there's certainly I'm sure we'll there will certain areas that we've talked about with them will most likely get accelerated now because Obviously, what's happening now, but right now, we're not having those discussions right now. There's more pressing issues in Israel right now.

Speaker 7

I see. Okay. Well, it looks like you're about to make some generally better movements forward with Gemini 2 going to 3. And hopefully this really starts to turn the company around in terms of its revenue volume and We'd expect that by the end of this fiscal year, there's some real momentum going forward. Can you comment on it?

Speaker 2

Yes, there's certainly momentum. And as time goes on, we hope to announce more traction. But look, but the end of the fiscal year, any revenue that comes will be coming from Gemini 1. So as we discussed, Gemini 2, we're not going to be even sampling it until summer of next year. And so that falls into fiscal 2025.

Speaker 7

Got you. Okay. Thank you.

Operator

Thanks, George. Thank you. As there are no further questions, I would now hand the conference over to the management for their closing remarks.

Speaker 1

Thank you all for joining us. We look forward to speaking with you again when we report our Q3 fiscal 2020 results.

Operator

Thanks. Thank you. The conference of GSI Technology has now concluded. Thank you for your participation. You may now disconnect your lines.

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