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spk01: Ladies and gentlemen, thank you for standing by. Welcome to GSI Technologies' fourth quarter and fiscal year 2021 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 a Q&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. These risks and uncertainties are described in the company's Forms 10-Q and 10-K filed with the Securities and Exchange Commission. Many of these risks are currently amplified by and will continue to be amplified by or in the future may be amplified by the COVID-19 global pandemic. Additionally, I have been asked to advise you that this conference call is being recorded today, May 6, 2021, at the request of GSI Technology. Hosting the call today is Lee Lin Chu, the company's Chairman, President, and Chief Executive Officer. With him are Douglas Shirley, Chief Financial Officer, and Didier Lachere, Vice President of Sales. I would now like to turn the conference over to Mr. Hsu. Please go ahead, sir.
spk00: Good afternoon, and thank you for joining us today to review our fourth quarter and fiscal year 2021 results. I will cover some highlights from the year and give an update on our APU products, followed by Didier Lachere with comments on products and the sales breakdowns. Afterward, Dr. Shirley will review in detail our fourth quarter and full year physical 2021 financial results. Physical year 2021 brought several unforeseen challenges to our business. We faced a global pandemic and slowing sales from our largest customers. With that said, we stay focused on our key objectives of bringing Gemini One to market and increasing awareness of our groundbreaking technology. We made good progress on both of these fronts. Despite the challenges presented by COVID over the past year, we launched remote cloud-based data centers in Israel and the US for customers to test and demo Gemini One. The Gemini APU is receiving more media coverage, highlighting its unique advantages and benefits. We have also received third-party validation of Gemini for certain applications, including our Elasticsearch plugin, which will discuss this section. Incidentally, the system bottleneck problem facing big data is getting Heightened attention, several leading semiconductor companies have recently introduced products. They are positioned a solution to eliminate system bottleneck. The system bottleneck we refer to is the volume bottleneck caused by the separate memory and the CPU in the volume architecture. The volume architecture requires the CPU to fetch data for every operation it performs. We don't believe that any of the new solutions address the actual problem. The only way to truly eliminate the bottleneck is to break the volume model. This is what the Gemini APU does. You remove the limitation of the volume architecture. With the Gemini APU, we break the volume model and usher in a new architecture that puts processes in the memory. Today, we are working on numerous applications with our customers and demonstrating how our revolutionary architecture can reduce latency, reduce power consumption, and offer scalable, flexible solutions. When we look at the trends that favor Gemini and APU architecture, ESG and the growing awareness of sustainability will be a significant trend that favors the Earth. ESG and the power consumption are increasingly topics on the radar in the press, in the boardroom, and with investors. In ever-growing data centers where AI and big data are rapidly increasing power consumption, there is a heightened focus on finding a better solution to use less power. The Gemini APU has demonstrated a dramatic reduction in power consumption for critical application in search. One exciting example is from our aerospace and defense workshop, which we held in February, where we compared a synthetic aperture radar, or SAR, image search over a similar area size, resolution, and times. Looking at the operating power, cost over five years, the Gemini AVU used 93% less power on average and can be installed in a small portable server cabinet. This is a significant reduction from the CPU or GPU-based solution. Additionally, this solution requires much greater hardware investment. Gemini not only delivers low power consumption, but lowers the overall system cost as well, decreasing total cost of our own machine. Another compelling comparison is traditional facial recognition system that use a rear edge server with a CPU and GPU to search data and send visual vector to the backend cloud CPU and memory farm. Here, the trend model search and the final ranking occur in the GPU and the match is identified. With the Gemini APU, this process is simplified. When the Gemini APU is stored along with the GPU or GPU, search takes place on the Gemini APU, eliminating sending data to the cloud, and the match is found more rapidly. This means fewer GPU and GPU are required and latency is reduced, and again, less power is used. On previous calls, I have highlighted all software capabilities. We have finalized Gemini 1 with the leaderboard for mass production, and we are on track to begin qualification soon. The software team at GSI has demonstrated their capability in numerous applications, and are always finding new ways to improve our offering and extend our capabilities. Our technology will make a difference in how search is done, like with ElastiSearch. Using KNN search could be ideal for working with a very large database, such as those at bidding scale entries and above. Because KNN is compute-exhausted, It has been challenging to use Elasticsearch due to the constant constraint of moving the database between GPU or CPU cores. With the APU, the storage itself becomes the processor. Instead of a massive array of processing cores with cache memory close by, the APU is differentiated by performing the processing in the memory array directly. The convergence of Elasticsearch, KNN, and ABU acceleration provide less latency, more query per second, and reduce the power. I found this very exciting, and we are engaging with potential customers in the SaaS vector search space who are recognizing the strengths of ABU technology. Overall, this was a year of surprise, and we lost to the challenge. COVID is still restricting business in many ways, but we are continually advancing our technology and bringing the Gemini APU to the world's attention. Today, GSR has 119 engineers worldwide, and we have received over 100 US patents, with 51 of them for the APU. I am grateful for all of our employees' commitment to delivering excellence in product, service, and support during these challenging times. Along with my team, we are bringing our revolutionary solution to our existing customers. The solution is also opening many doors for us with the potential new customers. There's lots of excitement about our progress on Gemini One at GSI. Our S1 products continue to be essential for military and defense and the telecommunication and the networking customers. Doug will comment on our second physical quarter outlook in his prepared remarks. Now I will now hand the call over to Didier, who will highlight the sales and marketing progress on Gemini One and review our business segment performance. Please go ahead, Didier.
spk02: Thank you, Lillian. I would like to touch on two things in my comments. the third-party validation of the GSI plug-in for Elasticsearch, and the recently announced Phase 1 contract with NASA. First, a little background on Elasticsearch for those unfamiliar with the name. Elasticsearch is the most popular search engine. What makes Elasticsearch so popular is that, one, it's open source and free software, and, number two, the way it stores documents with searchable references that allow them to be searched and retrieved and enables visualization tools for visual search. Very flexible and highly functional, Elasticsearch has become the go-to search solution for scalable real-time search. Recently, a third party tested our Elasticsearch plugin powered by the Gemini APU, which demonstrated the fastest vector query speed on a one million item search compared to four other methods. At 92.6 milliseconds, The Gemini APU was 82% faster than the next fastest solution and showed a 94% improvement from the slowest response solution. They also noted that unlike other methods, Gemini supported batch queries. These are impressive performance results and it's great to see them published by an independent party. Switching to the NASA contract, we issued a press release earlier this month announcing that we were awarded along with prime contractor Space Micro, a phase one contract to develop a real-time sorting inference processing unit, also known as an IPU, an IPU board for Earth observation missions. The board will feature a radiation-tolerant Gemini APU, which is the predominant force behind the IPU for satellite applications. Using inference rather than search gives the broadest potential scope for the NASA project, which is why they release references as an APU, I'm sorry, IPU. This phase one contract is the first key step to proliferating Gemini in space by giving us access to the mission. The goal of phase one is to optimize the product portfolio and demonstrate the usability of the hardware across multiple platforms for as many possible applications. Phase one is typically a six-month process. We are also very excited that the Board will be using a radiation-tolerant chip. Once we have optimized the portfolio, we hope to move to phase two, where we will receive NRE funds to cover design and qualification. We estimate 18 to 24 months of testing and qualification before we begin to ship the product. On a different note, I am pleased to report that earlier this week, we received a purchase order for our RAD-tolerant SRAM product. The PO is for demonstration satellites anticipated to be launched this year, late this year, or early next year. Ultimately, it is for a satellite constellation. We hope to be able to see more in the coming quarters. Shifting to our sales breakdown for the fourth quarter of fiscal 2021, Sales to Nokia were $2.8 million or 36.5% of net revenues compared to $2.4 million or 28.3% of net revenues in the same period a year ago and $2.8 million or 42% of net revenues in the prior quarter. Nokia sales have been slowly improving in the past two quarters and we expect business with Nokia to stabilize this year. Military and defense sales were 22.5% of fourth quarter shipments compared to 30.9% a year ago and 26% in the prior quarter. Sigma Quad continues to be our best performing product category with sales of 52.9% of fourth quarter shipments compared to 44.7% in the fourth quarter of last year and 62% in the preceding third quarter. I'd now like to hand the call over to Doug. Please go ahead, Doug.
spk03: Thank you, DDA. For the fiscal year ended March 31, 2021, we reported a net loss of $21.5 million, or $0.91 per diluted share, a net revenues of $27.7 million, a net loss of $10.3 million, or $0.45 per diluted share, a net revenues of $43.3 million in the fiscal year ended March 31, 2020. Gross margin for fiscal 2021 was 47.7%, compared to 58.5% in the prior year. Total operating expenses were $34.5 million in fiscal 2021, a decrease of 4.6% from $36.1 million in fiscal 2020. Research and development expenses were $23.3 million, compared to $25.2 million in the prior fiscal year, and selling general and administrative expenses were 11.1 million compared to 10.9 million in fiscal 2020. The decrease in research and development expense is primarily due to a charge of $2.7 million during the third quarter of fiscal 2020 for purchased intellectual property that is being incorporated into our next generation of Gemini chips. Fiscal 2021 operating loss was 21.3 million compared to an operating loss of 10.8 million in the prior year. The increase in operating loss is primarily due to the decrease in revenue and gross profit. Fiscal 2021 net loss included interest and other income of $94,000 and a tax provision of $335,000 compared to $712,000 of interest and other income and a tax provision of $247,000 a year ago. The company reported a net loss of $5 million or 21 cents per diluted share a net revenues of $7.7 million for the fourth quarter of fiscal 2021 compared to a net loss of $3.8 million, or $0.16 per diluted share, a net revenues of $8.5 million for the fourth quarter of fiscal 2020, and a net loss of $5.2 million, or $0.22 per diluted share, a net revenues of $6.8 million in the third quarter of fiscal 2021. Gross margin was 50.2% compared to 52.5% in the prior year period, 47.3% in the preceding third quarter. The change in gross margin was primarily due to changes in the mix of products sold and the negative impact of manufacturing overhead and reduced revenues. Total operating expenses in the fourth quarter of fiscal 2021 were $9.1 million compared to $8.4 million in the fourth quarter of fiscal 2020 and $8.3 million in the prior quarter. Research and development expenses were $6.1 million compared to $5.6 million in the prior year period and $5.7 million in the prior quarter. Selling general and administrative expenses were $3 million in the quarter ended March 31, 2021 compared to $2.8 million in the prior year quarter and $2.6 million in the previous quarter. Fourth quarter fiscal 2021 operating loss was $5.3 million compared to an operating loss of $3.9 million in the prior year period and an operating loss of $5.2 million in the prior quarter. Fourth quarter fiscal 2021 net loss included interest and other expense of $21,000 and a tax benefit of $304,000 compared to $148,000 in interest and other income and a tax provision of $65,000 for the same period a year ago. In the preceding third quarter, net loss included interest and other income at $25,000 and a tax revision of $90,000. Total fourth quarter pre-tax stock-based compensation expense was $753,000 compared to $644,000 in the comparable quarter a year ago and $693,000 in the prior quarter. At March 31st, 2021, we had $54 million in cash, cash equivalents, and short-term investments and $5.8 million in long-term investments, compared to $66.6 million in cash, cash equivalents, and short-term investments of $4.1 million in long-term investments at March 31, 2020. Working capital was $56 million at March 31, 2021, compared to $70.9 million at March 31, 2020, with no debt. Stockholders' equity as of March 31, 2021, with $75.6 million compared to $89.6 million as of the fiscal year ended March 31, 2020. Fourth quarter net revenues and gross margin were within the range of guidance provided in our last earnings release for net revenue in the range of $6.8 million to $7.8 million, with gross margin above the range of approximately 48% to 52%. Our current expectations for the upcoming quarter are net revenues in the range of $8.1 million to $9.1 million with gross margin of approximately 54% to 56%. Our board of directors has authorized us to repurchase at management's discretion shares of our common stock. Under the repurchase program, we may repurchase shares from time to time on open market or in private transactions. Specific timing and amount of the repurchases will be dependent on market conditions security law limitations, and other factors. The repurchase program may be suspended or terminated at any time without prior notice. To date, we have repurchased a total of 12,004,779 shares, including 3.8 million shares required for purchase at a purchase price of $600.50 per share under a modified Dutch auction self-tender offer completed in August 2014. Our repurchases have been at an average cost of $5.06 per share for a total cost of $60.7 million, compared to net proceeds of approximately $30 million in our IPO in March 2007. On March 31, 2021, management was authorized to repurchase additional shares of our common stock with a value of up to $4.3 million under the repurchase program. We have continuously had active programs to repurchase shares, but our repurchase price has been too low to purchase shares. Given the uncertainty in the economy, rising manufacturing prices, and the uncertainty of when Gemini APU and RadTalent products will generate significant revenues, we are in a cash conservation mode. Operator, at this point, we will open the call to Q&A.
spk01: Thank you. If you would like to signal with questions, please press star 1 on your touchtone telephone. If you're joining us today using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is star 1 if you would like to signal with questions. Our first question will come from Tork Karmanis with Carl Meaning.
spk04: Thank you. Question, is the NASA win, are we counting that as a Gemini win then? I thought it was mainly for rad-tolerant, but now you're saying that's the Gemini board. Is that kind of a double solution for that?
spk02: Correct. So it is the Gemini solution, but it will be a rad-tolerant version of our Gemini chip. I think, if you recall, it's been some time that we did some radiation testing on the Gemini, it's been about a year and a half. And the results came back very, very promising. And so we certainly took the testing beyond rat tolerant, but short of rat hard. So we feel very comfortable that the solution will work at rat tolerant levels.
spk04: Okay. What is your level of confidence in a design win for Gemini, whether it's facial recognition or At one point, you were talking about signaling and then some other things. Now, let's say for calendar 21, is there anything close, warm, hot?
spk02: So, you know, as Leland spoke about in his script, we certainly have a lot of customers we're talking to in different market segments. It's premature to say when some of those might hit. Is there a chance they could hit in calendar 2021? Possibly. Could it get pushed out? Hard to say. Right now, we're still in that design-in phase, so it's hard to predict when some revenues may occur.
spk04: Okay. And then maybe a bigger question. If you're not able to get design wins, is there a path or a time where you would maybe – look to license partner, or how do we view we just keep going until you get something, or is there some point where you say maybe we bring someone else in to help sell it, or what is the thought there?
spk00: Well, as I mentioned earlier, we do have a very productive meeting with the customer, and I feel comfortable right now. And we will get some, hopefully we will get some more concrete news to announce once we have a more obvious result. And in terms of licensing, we do talk to customer, you know, if it was required for us to go there, we definitely will consider it. But from the On the marketing, selling the IT, we are not in that mode. But if there's a specific area with a big customer, as I mentioned, worthwhile, then we are definitely welcoming.
spk04: Okay. Doug, I apologize. I might have missed that. Did you extend or expand the buyback? Or then I heard you say cash conservation. Can you restate that? I apologize.
spk03: Yeah, we still have $4.3 million available to repurchase shares, and we'll be opportunistic with it.
spk04: Okay, so that's kind of unchanged.
spk03: Yes.
spk04: Yeah. Okay, thanks a lot. Oh, wait, I had one more question. Am I still on?
spk03: Yes.
spk04: Oh, the red hard, have you reached heritage yet? Have you had any launches, or is that still in wait?
spk02: So as we've talked about, RAD hard is kind of a difficult area for us now because of the shutdowns. As we've recalled, most, if not all, of the RAD hard opportunities are some kind of a national asset that require face-to-face meetings, which we're unable to do right now. The RAD tolerance, however, as I mentioned, we just got the PO two days ago for a demonstration satellite that's going to ultimately be part of a constellation. That will be rat tolerant, but we're hoping that that happens by the very end of this year or beginning of next year, and that will give us that elusive heritage that you're talking about.
spk04: Okay. Okay, great. Okay, thanks a lot.
spk01: Thanks, Kurt. Once again, if you would like to signal with questions, please press star 1. Again, star 1. One, if you would like to signal with questions, we will pause for just a moment. At this time, there are no further questions. I'll now turn the conference back over to you.
spk00: Thank you all for joining us. We look forward to speaking with you again when we report off. first quarter fiscal 2022 result. Thank you.
spk01: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
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