GSI Technology Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
October 24, 2024

There are 6 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology Second Quarter Fiscal 2025 Results Conference Call. At this time, all participants are on 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 the Securities and Exchange Commission. Additionally, I've also been asked to advise you that this conference call is being recorded today, October 24, 2024, at the request of GSI Technology. Li Ling Xu, the company's Chairman, President and Chief Executive Officer, will be hosting the call today.

Operator

With them are Douglas Shirley, Chief Financial Officer and Didier Lysere, Vice President of Sales. I would now like to turn the conference over to Mr. Hsu. Please go ahead, sir.

Speaker 1

Good afternoon, and thank you for joining us to review our Q2 fiscal 2025 financial results. We are starting to see a significant turnaround in our SORM business this quarter, driven by 2 key factors. First, existing customers are actively decreasing their channel inventories, and we anticipate they will resume orders in the upcoming quarters. 2nd, we have secured a new SM design with significant growth potential. Our long standing partnership with the provider in the semiconductor manufacturing process is yielding significant demand related to a new AI chip.

Speaker 1

Didier will cover this exciting development in more detail in his comments. I want to update you on our Phase 1 and 2 SBIR contracts. We are on track to meet the deadlines for the Gemini 2 II benchmarking project and fulfill our SBIR contract with the U. S. Air Force Research Lab by December 31, 2024, followed by the delivery of the software algorithm in the Q1 of calendar 2025.

Speaker 1

Didier will turn further on our SBIR opportunities in his comments. Switching now to the APU development. We remain on track to meet our milestones on Gemini 2, including the benchmarking, which will be completed by the end of this year. We are excited that we have software fixes for the box in the first spin of Gemini 2. This means we are much further ahead on the Gemini 2 software development and the library building at this stage than we were with Gemini 1.

Speaker 1

Lastly, on the APU roadmap, we are in early stage of hardware development of a potential APU for use with ALM, which we named PLATO. On our Q3 earnings conference call, I will provide more detailed plan for this product and its potential applications. However, I want to ensure stakeholders, now that we have a roadmap beyond Gemini 1 and 2 for APU that we can execute given the company's resources. In previous call, I discussed our excellent opportunities, XR opportunities. 2 companies are currently using the APU for SAR applications and both projects are progressing well.

Speaker 1

T. J. Will give an update on the current status of this engagement. For the fiscal Q2, we reported revenue of $4,600,000 in line with our guidance. Our gross margin was under pressure this quarter due to the mix of products and non recurring severance costs related to workforce reduction in manufacturing.

Speaker 1

During the quarter, we introduced strategic cost cutting measures to extend our financial runway and capitalize on our immediate and long term opportunities. This action, including workforce reduction across all departments and the enhanced operational efficiency, are projected to generate annualized savings of $3,500,000 We expect this restructuring initiative and improved asset revenue outlook to reduce our cash burn significantly. 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. Let me start with the new SRAM opportunity that Lyleen mentioned earlier. Our customer system is used to manufacture a leading AI chip developers top selling chip in their newly released chip. Volumes shipments of our 144 megabit SRAM to this customer began at the start of calendar 2024, coinciding with an increase in the forecast for its product used in AI chip that is coming online. Demand for their product has been rising along the rapidly growing need for the top selling and newly launched chips for the leading AI chip maker, fueled by the growth in high performance computing hardware.

Speaker 2

Looking ahead, we anticipate even greater demand due to indications for a newly released chip requiring a higher capacity of this manufacturing product for this next generation chip production needs. Interest in this new AI chip has been exceptional as leading tech companies compete to deliver the best hardware for their large language model platforms. We expect our collaboration with this customer to drive substantial demand for our SRAM chips. This customer is now positioned to become our number one customer in the near future. In addition, we have 2 other large existing customers that we have worked that have worked through excessive inventory and we anticipate this will increase SRAM orders in the future quarters.

Speaker 2

Let me switch to recap our SBIR work. We are still working through the milestones of the 2 SBIRs that we previously were granted. As a reminder, these were the $1,250,000 and the $1,100,000 respectively. For the $1,100,000 grant, we aim to deliver a YOLO 3 and YOLO 5 model within 4 months that can be used for any real time object detection application. If you are unfamiliar with the acronym YOLO, it stands for you only look once.

Speaker 2

YOLO models are real time object detection algorithms that immediately determine where objects are by drawing boxes around them and what those objects are by identifying their types in any image. We are still in contract negotiations on the SBIR we were awarded last quarter by new large division of the DoD for an edge board application. We hope to finalize that contract within the next month and begin working on the project deliverables before calendar year end. Before I move on to customer and product breakdown, I want to expand on the SAAR opportunities that Lilleen mentioned. GSI is engaged with 2 customers on SAR Edge applications that have completed evaluations with Gemini 1.

Speaker 2

Recently, they both began evaluating Gemini 2. Our ongoing SAR engagement with an Asian Defense Research and Development Organization is transitioning from evaluating Gemini 1 to a Gemini 2L, which is a low power version of our Gemini 2. This is intended for an in flight application using SAR image generation. The project using Gemini 2L has specific applications that better align with a lower power profile needed for this flight application. Another customer, a U.

Speaker 2

S. Aerospace company specializing in SAR technology is investigating the possibility of using Gemini 2 on a satellite for SAR applications. The company recently requested new benchmarks for a more complex application, which are in the process of which we are in the process of executing now. As Lalin mentioned, we are using the lessons learned from that experience to advance our timeline for Gemini 2. In both cases, we successfully used Gemini 1 to demonstrate the SAR capabilities, which paved the way for Gemini 2 to be evaluated for use as a real time edge application I'm sorry, edge device for these applications.

Speaker 2

We are also leveraging SBIR opportunities, including ones that we have won to help fund the further development of Gemini 2 and PLAY DOH. Let me switch now to customer and product breakdowns for the Q2. In the Q2 of fiscal 2025, sales to Nokia were $812,000 or 17.8 percent of net revenues compared to $1,200,000 or 20.3 percent of net revenues in the same period a year ago and $998,000 or 21.4 percent of net revenues

Speaker 3

in the prior quarter. Military

Speaker 2

defense sales were 40.2% of 2nd quarter shipments compared to 34.8% of shipments in the comparable period a year ago and 31.9% of shipments

Speaker 3

in the prior quarter. SigmaQuad sales were 38.6%

Speaker 2

of 2nd quarter shipments compared to 55.8% in the Q2 of fiscal 202436

Speaker 3

point 3% in the prior quarter.

Speaker 2

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

Speaker 4

We reported net revenues of $4,600,000 for the Q2 of fiscal 2025 compared to $5,700,000 for the Q2 of fiscal 2024 $4,700,000 for the Q1 of fiscal 2025. Gross margin was 38.6 percent in the Q2 of fiscal 2025 compared to 54.7 percent in the Q2 of fiscal 2024 and 46.3% in the preceding Q1 of fiscal 2025. The decrease in gross margin in the Q2 of 2025 was primarily due to shift to product mix and non recurring severance costs associated with manufacturing workforce reductions. Total operating expenses in the Q2 of fiscal 2025 were $7,300,000 compared to $7,200,000 in the Q2 of fiscal 2024 $1,100,000 in the prior quarter. Prior quarter operating expenses included a gain of $5,700,000 related to the sale and leaseback of the company's headquarters.

Speaker 4

Research and development expenses were $4,800,000 compared to $4,700,000 in the prior year period and $4,200,000 in the prior quarter. Selling, general and administrative expenses were $2,600,000 in the quarter ended September 30, 2024 compared to $2,500,000 in the prior year quarter and $2,600,000 in the previous quarter. 2nd quarter fiscal 2025 operating loss was $5,600,000 compared to an operating loss of $4,100,000 in the prior year period and operating income of $1,100,000 in the prior quarter. 2nd quarter fiscal 2025 net income included interest and other income of $149,000 and a tax provision of $23,000 compared to $71,000 in interest and other income and a tax provision of $33,000 for the same period a year ago. In the preceding Q1, net loss included interest and other income of $55,000 and a tax provision of $57,000 Net loss in the Q2 of fiscal 2025 was $5,400,000 or $0.21 per diluted share compared to net loss of $4,100,000 or $0.16 per diluted share for the Q2 of fiscal 2024 and net income of $1,100,000 or $0.04 per diluted share inclusive of one time gain of $5,700,000 on the sale leaseback transaction related to the sale of the company's headquarters for the Q1 of fiscal 2025.

Speaker 4

Total second quarter pre tax stock based compensation expense was $663,000 compared to $676,000 in the comparable quarter a year ago and $658,000 in the prior quarter. September 30, 2024, the company had $18,400,000 in cash and cash equivalents compared to $14,400,000 at March 31, 2024. Working capital was $21,100,000 as of September 30, 2024 versus $19,100,000 at March 31, 2024. Stockholders' equity as of September 30, 2024 was $33,300,000 compared to $36,000,000 as of the fiscal year ended March 31, 2024. On a prior earnings call this year, we announced that the company had initiated a comprehensive strategic review and established a special committee of the board to evaluate specific strategic alternatives.

Speaker 4

We continue to work with Needham and Company as our strategic and financial advisor to assist in this process. Operator, at this point, we will open the call to Q and A.

Operator

Thank you. At this time, we'll be conducting a question and answer Our first question comes from Jeff Bernstein with Silverberg Bernstein. Please proceed with your question.

Speaker 5

Hi, good afternoon. Question on the SRAM opportunity. So are you saying that's for a semi equipment wafer fabrication equipment customer or is it semi test equipment customer?

Speaker 2

Along those lines. Yes, we don't want to give too much detail because right now we don't want to name our customer. I mean it's been a customer we've had for many years, but they've never been a 10% customer. So we haven't identified them just

Speaker 5

on the

Operator

just on

Speaker 5

the various APUs now. So there was mention of something called Cradle. Is that like a low power version of Gemini 2 or what's Cradle and what's the L that you referred to the low power Gemini 2?

Speaker 2

Sure. So we have Gemini 2L is a derivative of Gemini 2. It's not a new design. It's just a way that we can configure the die to make it work with 1 core or 2 core. If you recall our Gemini 2, in fact Gemini 1 for that matter have 4 cores.

Speaker 2

And so it's a way for us to limit which what's working inside the chip and so people can use kind of a smaller variable of the device, which in turn gives them a very low power part. And so that's the Gemini 2L is just a derivative of our existing Gemini 2. PLAY DOH, however, is a new design and it's going after a different market. It's going after the LLM market specifically on the edge. And so it will be very low power as well.

Speaker 2

If you're familiar with the LLM market today, some of the folks going after it are going after with very, very large GPUs that require water cooling what have you. And so in this case, this is more for Edge LLMs and it will be a low power solution.

Speaker 5

Got you. And that's for inference?

Speaker 3

Correct. Got

Speaker 5

you. Okay, that's great. Thanks. I'll let somebody else

Operator

There are no further questions. At this time, I'd like to turn the call back over to management for any closing comments.

Speaker 1

Thank you all for joining us. We look forward to speaking with you again when we report our Q3 fiscal 2025 results. Thank you.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

Powered by Quartr
Earnings Conference Call
GSI Technology Q2 2025
00:00 / 00:00