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spk02: Ladies and gentlemen, thank you for standing by. Welcome to GSI Technologies' first quarter fiscal 2023 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 question-and-answer. 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 also been asked to advise you that this conference call is being recorded today, July 28th, 2022, at the request of GSI Technology. Hosting the call today is Li-Lin Chu, the company's chairman, president, and chief executive officer. With him are Douglas Sherrill, chief financial officer, and D-Day LaFerre, vice president of sales. I would now like to turn the conference over to Mr. Chu. Please go ahead, sir.
spk03: Good afternoon, and thank you for joining us to review our physical 2023 first quarter financial results. Our legacy S&M business, with its stable revenue and cash generation, continues to fund our APU hardware and software R&D. In the first quarter of fiscal 2023, we delivered a year-over-year increase of 12% in gross profit or modest revenue growth. Our growth margin, retention to 60.2%, was related to the product mix in the quarter. As a result, we reduced our operating loss from the same quarter a year ago and narrowed our land loss for the first quarter. At the end of the quarter, we have cash, cash equivalents, and shorter investments. of $41.5 million. The foundation provided by our historical estuarine business supports the next phase of growth at GSI with the APU business. We have further growth opportunities from our radiation-hardened and radiation-tolerant estuarine products. We have expected to receive a radiation-hardened estuarine order from a prime contractor in the June quarter However, there has been a delay due to a request for additional specification review. We now expect this order to ship in the second quarter of fiscal year 2023. Didier will provide more detail on this announcement in his comments. The team continues to advance AP opportunities on several fronts. We expect to launch search and AI, all SaaS platform, to be available for alpha users this quarter to address a growing segment of customers interested in cloud only. The SaaS platform is delivered as a subscription service that runs on GSI servers without readable. Searching AI accelerates ElastiSearch and OpenSearch workflows. This approach provides an economic solution for business scaling to large capacity, including billion-factor datasets, without losing accuracy. Searching.ai also offers fast vector search, providing high-speed, accurate search of large vectorized text, image, video, and audio database. The platform uses simple API integration into a customer's workflow, enabling rapid deployment and use. The search market is rapidly growing, as evidenced by the success and the growth of Elastic.com. Database users need enhanced search capabilities with real-time log analysis and visualization, and support for high-volume queries. with the ability to run a million queries simultaneously. Working with a hundred or few in big data table, when speed is a crucial and growing need, our SaaS offering can provide increased speed and scalability without losing accuracy. We are excited about making Searching.ai generally available to all customers, which is currently scheduled to occur by the end of calendar 2022. In July, we released the first version of the full stack compiler for the APU product called the Copperhead. This release is a combination of 18 months of effort that created a high-efficiency L-Python compiler for development of code for host processor, embedded processor, and APU processing array. This breakthrough development brings L-Python which provide the familiarity and the programming environment benefit of Python with the speed of Sheet to the development of real-time big data AI applications supported by the APU. The CoverHead compiler currently supports low-level library cores and intermediate development for linear algebraic algorithm acceleration. It's available to select select the alpha customers and has shifted to external companies as well as being used internally to migrate previous C library within GSI for the APU. GSI will increase application library migration to Coverhead over the next courses. We currently expect to add convolution, keycam, image processing, SAR, and the general high-level application code development by mid-calendar 2023. Currently, we have numerous early-stage APU projects. They are in the initial discussion phases. Several of the large opportunities are with new contacts that arose from our first-place win in the MoSAC challenge. In that challenge, our software performed the fastest and most accurately at various distances and under diverse lighting conditions, using images from real-time HD video source from moving drone. This capability has many applications in the large global security market. Using our military and defense business contacts, we are leveraging the approach this accomplishment has brought to GSI. In addition, one of the most challenge sponsors was the Mirage Institute. an organization committed to promote economy growth between Israel and the U.S. One function of the institute is to facilitate business development. And as a result, we have made several valuable new connections and are engaging with new companies to discuss the Gemini platform. Another outcome of the Mosaic Challenge was the ependiscope of our existing SAR project. with the ELTA slash MAFET. This project is advancing, and we are preparing for the final integrations. The POC with ELTA is funding a SAR image processing system based on our APU technology. We're currently anticipating shipping three APU servers with up to 16 data exports in the server to ELTA by mid-calendar 2023. The NRE funds from ELTA have been used to develop an inclusive perpetual license of the fast stack projection algorithm. This agreement with ELTA will allow GSI to sell a SaaS system product containing the algorithm. We intend to pursue the entire SaaS market with this product. In fiscal year 2022, we increase customer engagement for the APU. and make contact in new market segments. We are in early stage of working with numerous POCs and expect to further our engagement. In fiscal year 2023, we start building the team we needed to initiate Gemini outreach and manage the process of moving customers through the pipeline from proof of concept to design wind and ship products. We have a roadmap for the APU and the next generation of Gemini is on track. The design of Gemini 2 has been finalized and we are at the final present law layoff stage. We are on target for tipping off at calendar year end. Gemini 2 is a highly integrated product that offers great improvement over Gemini 1. It will improve the speed performance by 8 times, has 8 times more internal embedded memory, reduce the cost to one quarter on the car level, and greatly expand our addressable market. We currently intend having the first city compacted unit for the Gemini 2 by calendar Q2 next year. GSI shareholder has been asking for accountability and transparency. I want to assure our shareholders that I understand your frustration, and as the largest car shareholder, I feel that myself. Many people on my team are also large shareholders, some of whom have worked with me for decades. I have a sense of urgency to deliver on all goals and create a market for the APU that I know is possible. I welcome open dialogue with all shareholders, and I value your input. My intention is to make fiscal year 2023 the turning point for this company. by building a meaningful pipeline for the APU and closing new business for our groundbreaking technology. Now, I will hand the call over to Didier, who will discuss our business performance for the fiscal year.
spk05: Thank you, Lilien. Let me start with an update on our radiation-hardened or rad-hard SRAM business. We shipped four prototypes to three separate rad-hard customers in the last fiscal year. All the customers are currently testing these systems that require chips to withstand harsh conditions. As Leline mentioned, we expected another red hard prototype order in the first fiscal quarter. The release of the purchase order from this prime contractor was delayed to this current quarter. We have the parts ready to ship, so once we have the order, the parts will ship. This prototype order could potentially be the same revenue magnitude of all of our radiation hardened orders in the last fiscal year. As a reminder, RadHard is a high growth profit product for us. And if a few of these prototypes move into production, it could add incrementally to fiscal years 2023 and 2024 revenues. Let me switch now to customer and product breakdowns for the quarter. In the first fiscal, I'm sorry, in the first quarter of fiscal 2023, sales to Nokia were 1.3 million or 14.7% of net revenues compared to 3.8 million or 42% of net revenues in the same period a year ago and 2.0 million or 23.1% of net revenues in the prior quarter. First quarter fiscal 2022 net revenues included orders for buffer stocks shipped to Nokia amounting to approximately 1.0 million that were made in anticipation of a continued market tightness. Military defense sales were 22.3% of first quarter shipments compared to 20.0% of shipments in the comparable period a year ago and 22.3% of shipments in the prior quarter. Semi-quad sales were 44.8% of first quarter shipments compared to 63.6% in the first quarter of fiscal 2022 and 47.6% for the previous quarter. Lastly, I want to comment on the current supply chain situation. We currently moved the majority of our chip substrate suppliers out of China last year to limit the potential delays by any COVID-related lockdowns in China could cause. We are actively addressing supply chain variances that could potentially impact our order fulfillment, but the situation remains fluid. Overall, most of the cost increases from our suppliers were successfully passed on to our customers in December of 2021. We are closely watching costs and evaluating if we need to change prices in the future. GSI and the industry as a whole are constrained by the availability of FPGAs. Since we use FPGAs on our leaderboards, we could potentially be constrained if we receive a large order for an APU platform. So we are still confident that we can fulfill orders that we have in hand and for the upcoming quarters for our SRAM customers and are optimistic that we have sufficient capacity to meet this demand. I'd now like to turn the call over to Doug. Go ahead, Doug.
spk00: Thank you, DDA. GSI reported a net loss of $4 million, or $0.16 per diluted share, on net revenues of $8.9 million for the first quarter of fiscal 2023, compared to a net loss of $4.2 million, or $0.17 per diluted share, on net revenues of $8.8 million in the first quarter of fiscal 2022, and a net loss of $3 million, or $0.12 per diluted share, on net revenues of $8.7 million for the fourth quarter of fiscal 2022. Gross margin in the first quarter of fiscal 2023 was 60.2% compared to 54.4% in the prior year quarter and 58.6% in the preceding fourth quarter. Improvement in gross margin was primarily due to changes in product mix holding the quarter compared to prior periods. Total operating expenses in the first quarter of fiscal 2023 were $9.3 million compared to $9.1 million in the first quarter fiscal 2022 and $8.1 million in the prior quarter. Research and development expenses were $6.6 million compared to $6.1 million in the prior year period and $6.5 million in the prior quarter. Selling general and administrative expenses were $2.7 million in the quarter ended June 30, 2022 compared to $3 million for the previous year quarter and $1.5 million in the previous quarter. Fiscal First quarter fiscal 2023 operating loss was $3.9 million compared to $4.4 million in the prior year period and $2.9 million in the prior quarter. First quarter fiscal 2023 net loss included interest and other expense of $26,000 and a tax provision of $60,000 compared to interest and other expense of $20,000 and a tax benefit of $172,000 in the prior year. In the preceding fourth quarter, net loss included interest and other expense of $47,000 and a tax provision of $21,000. Total first quarter pre-tax stock-based compensation expense was $638,000 compared to $823,000 in the comparable quarter a year ago and $714,000 in the prior quarter. At June 30, 2022, The company had $41.5 million in cash, cash equivalents and short-term investments and $875,000 in long-term investments, compared to $44 million in cash, cash equivalents and short-term investments and $3.3 million in long-term investments at March 31, 2022. Working capital was $44.8 million as of June 30, 2022, compared to $45.8 million at March 31, 2022, with no debt. As of June 30, 2022, stockholders' equity was $61.3 million compared to $64.5 million as of the fiscal year ended March 31, 2022. Our current expectations for the second fiscal quarter are net revenues in the range of $8.5 million to $9.5 million, with gross margin of approximately 61% to 63%. We maintain a detracted balance sheet with a surplus of cash and no debt. Operator, at this point, we will open the call to Q&A.
spk02: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions.
spk01: Our first question is from Luke Owen.
spk02: Please proceed with your question.
spk04: Hi. I've got some questions about the transition from Gemini 1 to Gemini 2. I'm wondering if there will be any inefficiencies with the software retention from Gemini 1. So, yeah, we've all currently been reporting on building the software foundation for that. Will that have to be repeated for Gemini 2? And, yeah, any hardware applications, will servers have to be replaced for the customers that currently have concept servers or the ones that are going to be seen between now and the release of Gemini 2?
spk03: Yes, we need to migrate the software, the library from the Gemini 1 to Gemini 2. But the good thing is we already have a learning curve. So I anticipate we will be much smoother, you know, making the software migration from the 1 to 2.
spk04: Okay. So you'd be using similar templates, be able to retain some of the integral code there.
spk03: Well, I think that the learning curve will be there, but I think the detailed implementation, because the circuit is different, so it will be some implementation that needs to be done to fully utilize the Gemini 2.
spk01: Okay.
spk04: Yeah, I really appreciate the transparency you mentioned in the call about your outlook and development updates. I certainly appreciate it, and I see that you got a lot of traction. So, yeah, we share these exciting developments. Or at least, yeah, I can say that another shareholder is definitely interested. So have you thought about releasing a roadmap for the Gemini project to post on your website publicly?
spk01: Are you talking about Gemini 2?
spk03: Yeah, or comprehensively.
spk04: the overall Gemini project?
spk03: Yeah, I guess we don't have it at this moment. We probably can look into it.
spk04: Okay. Conveniently, yeah, producible. I think that'd be nice for, yeah, just for networking purposes. Yeah, so the Gemini 1 mentioned that the production might have limitations. There are all these capacities produced as FPGAs. Yeah, what kind of scalability you do have for this initial alpha customer for the Elasticsearch. And do you imagine being saturated with that or open up to the public to be able to bring up larger customers? And I'm not sure exactly what it looks like, but thinking about organization snowflake or even database providers that proprietary processing like Rackspace or MVV. how companies that are using sales of products would be able to, what are they able to access from y'all's first launch?
spk05: So let me answer the beginning of that question. So we have already some servers installed in our Sunnyvale facility, our Israeli facility, and also a third-party core site, which is the core site location was installed for the upcoming OpenSearch engagement that we have, and it can also be used for Elasticsearch. So that hardware has already been installed. We have additional hardware in-house along with the raw components, the raw components being FPGAs to build up a certain amount. We have certainly FPGAs on order. It's just I guess the comment in the script was that we don't have unlimited material on hand at this point. I mean, we do have to deal with the same lead time issues that everybody else in the market space buying these parts. So we certainly have enough for alpha, beta customers for sure, and even adding more to our data centers. It's just, you know, in case something very large were to break, we would certainly have some lead time issues supplying that hardware. That's really what the comment was for.
spk04: Okay. And do you have any information about what the model will be for revenue for that elastic search, the initial certium rollout, whether it be subscription or a la carte?
spk05: Yeah, we're still working on that. So we haven't released any revenue forecasts at this point.
spk04: Okay. My last question is about the CHIPS Act. Actually, I have one other clarification, but the CHIPS Act that's moving through Congress right now, do you all anticipate the benefit from any of that, maybe the development incentive or development benefit?
spk03: Yeah, I think we don't see the direct benefit, but overall, it will be more funding to the industry and more funding to the government party, and we are
spk04: we are actively looking for the sdr so indirectly i think we definitely will be benefit of it uh does that answer your question yeah certainly yeah kind of influence more the demand side than your all supply side okay and then um i was wondering i didn't catch the name israel u.s collaboration organization uh helping to facilitate yes some of your all's network
spk05: I'm sorry, can you repeat that? You're cutting out. It's hard for us to understand.
spk04: Yeah, it was mentioned that there is an Israel Collaboration Facilitation Organization that we all are working with, and I didn't catch the name of it.
spk05: Yeah, it's Mirage Institute. So the last challenge that we participated in, the Mosaic Challenge, was – sponsored by a few entities, DOD being one, MAFAP being another, and then the Mirage Institute. And so the Mirage Institute, because of our win in that, the VP of the division of our APU out of Israel was invited to a two-week seminar with other Mirage Institute members And it's opened up access to a lot of very high-level meetings with very influential customers that could be using APU. And so it's certainly early in that process because that Mirage competition was just this year, but we've already seen some movement on potential POCs based off of that Mirage Institute relationship we have.
spk04: Excellent. Yeah, it's great to see you all retaining those relationships. Building on it. All right, that's all my questions. I really appreciate you all. Congratulations on the development. Thanks, Luke.
spk02: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad.
spk01: It appears that there are no more questions at this time.
spk02: I would like to now turn the call back over to Mr. Hsu for closing remarks.
spk03: Thank you all for joining us. We look forward to speaking with you again when we report our second quarter fiscal 2023 results. Thank you.
spk02: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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