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spk08: ladies and gentlemen thank you for standing by welcome to gsi technology's second 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 q a before we begin today's call the company has requested that i read the following safe harbor statements The matters discussed in this conference call may include forward-looking statements regarding future events and the future performance of GSI technologies 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 have also been asked to advise you that this conference call is being recorded today, October 27th, 2022, as a request of GSI Technology. Hosting the call today is Leland Hsu, the company's chairman, president, and chief executive officer. With him are Douglas Shirley, chief financial officer, and Dider Le Serre, 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 to review our second quarter fiscal 2023 financial results. Revenue in the second quarter of fiscal year 2023 grew year-over-year by nearly 15% to $9.0 million, the midpoint of our guidance range. Revenue growth was primarily due to increased sales of high-performance assets. and the shipment of radiation-hardened assurances in the quarter. As a result, our gross margin rose by 900 basis points year-over-year to 62.6%. Higher gross margin, along with flat operating expense year-over-year, led to a lower operating loss for the quarter. The loss for the second quarter narrowed to 3.2 million, As of September 30, 2022, GSI Technologies' cash balance, which includes cash and cash equivalents, as well as short and long-term investments, was $38.9 million. We have a number of islands in the fire with Gemini One, but our team is primarily focused right now on developing two real-time markets for the APU. The first is synthetic actual radar or SAR image processing accelerations. And the second is fast vector or neural search optimized for big data applications. Let me help you understand why these two markets are being prioritized. At the end of September, we announced that our synthetic virtual radar image processing acceleration system using GSI's APU was approved for use by IOTA, a subsidiary of Israeli aerospace industries. This is a chance to showcase the technological superiority of our APU and will open future opportunities for GSI in the field of accelerating SAR image formation with new customers. The features that make our star image processing acceleration system solution very attractive are, one, scalability, two, low power consumption, and three, portability. First, with respect to scalability, the scalable APU architecture allow depending to multiple boards on servers for added performance and redundancy without specialized link. The APU platform has the capability to stack servers together and bring real-time capability to time-consuming, compute-intensive process. Second, with respect to lower power consumption, GSI has demonstrated using a large area SAR image process in one second and higher resolution scenarios that APU use On average, 88% less power than CPU or GPU systems and requires significantly fewer servers. And so, with respect to portability, our solution uses one-tenth the number of servers than a CPU or GPU system, making it small enough to be installed on UAVs and ZONs. GSI SOC can support a broad range of platforms, aboard from 500 meters covers to 750 kilometers satellite, as well as data center deployment. The SAR market is an attractive market where we have existing relationship with prospective targets. Didier will elaborate on the go-to-market strategy for the SAR application in his comments to follow. Our fast vector or rural search product, which I will refer to as our FES product, supports on-prem, hybrid, and the cloud users. The FES plugin can be used by customers who are all on-prem, and those that may have hybrid storage and or processing in the cloud. For completely cloud-based customers, The search.ai website is live and available for trials. We currently have about 12 users exploring the platform. These users are primarily data scientists evaluating searchers' capability for their organizations, meaning they load their database and create a front end for the teams to search. The compelling features of the FES product A speed combined with a small hardware footprint and lower operating power consumption compared to traditional large platforms used for search in large compressed database. We still have a work to do on our end in developing business opportunity for the FVS product and scaling the business. The term for the specific search market we are pursuing is a very large market. Google has estimated that More than $300 billion is lost due to search abandonment each year in the US alone. We are providing an accelerator for existing search platforms, such as OpenSearch and the Elasticsearch that accelerate the search with lower power and less hardware, rather than just adding more traditional computation capability. The Gemini plugin expands search capability beyond text, and does it faster using a simple approximated nearest label of KNN vector similarity search. This is Gemini One's sweet spot in performance and an ideal application for the technology. We are ready for production supporting customer on-prem or hybrid solutions. Searching.ai allows FES part customer to try our product prior to committing their workloads or purchasing hardware. We also support full cloud-based customers utilizing the OpenSearch database. We have launched Searching.ai and attracted more than 500 visitors and are working with a dozen opportunities. We will have plugins for ElastiSearch database. With these three potential customer sources to grow this market, On-prem, hybrid, and cloud, we are confident that we can see revenue from FBS products in calendar 2023. Last, let me give an update on the compiler stack. We released the CoverHead, the first version of the full stack L-Python compiler for APU code development for alpha users. And we plan to migrate APU application library over the next few quarters. Currently, Copperhead is still in alpha mode and is used exclusively for internal development. We are targeting an end-of-year beta release and expect the compiler to be broadly available this calendar year. This is a longer timeline than we had originally anticipated, but we are building a fast and efficient tool for use in L-Python for library code generation. We believe the additional development time will yield a better outcome. Now I will hand the call over to Didier, who will discuss our business performance further. Please go ahead, Didier.
spk02: Thank you, Didier. In the second quarter, we shipped RadHard chips to a U.S. prime contractor who used them in prototyping a new program. This was a one-off sale, and we do not have visibility for a follow-on order from this customer at this time. However, if a few of the recent prototypes we've shipped move to production, it could add incrementally to the fiscal year's 2023 and 2024 revenues. As Aline mentioned earlier, we have finalized the SAR POC with IAI-ELTA. We have finalized all the sales and marketing materials needed for customers, including benchmarking, technical papers, and an online demo. We are now aggressively launching a campaign to engage with the leading players in the SAR market. It's the early stages of developing this market for Gemini One, but we have a great solution that is extremely flexible and can support a large variety of use cases. Typically, SAR applications are very specific, but Gemini One can be used in a wide range of altitudes, resolution, and image sizes. Also, due to the small footprint, our solution can be deployed in small drones or satellites. As a result, we are confident we can successfully build a customer base with this application. Let me switch now to customer and product breakdowns for the second quarter. In the second quarter of fiscal 2023, sales to Nokia were $1.2 million or $13.6 of net revenues compared to $1.9 million or 23.8% of revenues in the same period a year ago and $1.3 million or 14.7% of net revenues in the prior quarter. Military defense sales were 22.4% of second quarter shipments compared to 27.4% of shipments in the comparable period a year ago and 22.3% of shipments in the prior quarter. Sigma quad sales were 58.1% of second quarter shipments compared to 52.4% in the second quarter of fiscal 2022 and 44.8% the previous quarter. We remain confident we can fulfill the orders that we have in hand for the upcoming quarters for SRAM customers and that we have sufficient capacity to meet the demand. I'd like to hand the call over to Doug. Doug, go ahead, please.
spk06: Thank you, DDA. We reported a net loss of $3.2 million for 13 cents per dilute share, a net revenues of $9 million for the second quarter of fiscal 2023. compared to a net loss of $4.6 million for $0.19 per diluted share, a net revenue of $7.8 million for the second quarter of fiscal 2022, and a net loss of $4 million for $0.16 per diluted share, a net revenue of $8.9 million for the first quarter of fiscal 2023. Gross margin was 62.6% compared to 53.6% in the prior year period and 60.2% in the preceding first quarter. The changes in gross margin were primarily due to changes in product mix sold in the three periods. Total operating expenses in the second quarter of fiscal 2023 were $8.8 million compared to $8.7 million in the second quarter of fiscal 2022 and $9.3 million in the prior quarter. Research and development expenses were $6.4 million compared to $5.9 million in the prior year period and $6.6 million in the prior quarter. Selling general and administrative expenses were $2.4 million in the quarter ended September 30th, 2022 compared to $2.8 million in the prior year quarter and $2.7 million in the previous quarter. Second quarter fiscal 2023 operating loss was $3.2 million compared to $4.5 million in the prior year period and $3.9 million in the prior quarter. Second quarter fiscal 2023 net loss included interest and other expense net of $14,000 and a tax provision of $37,000 compared to interest income and other expense net of $8,000 and a tax provision of $42,000 for the same period a year ago. In the preceding first quarter, net loss included interest and other expense of $26,000 and a tax provision of $60,000. Total second quarter pre-tax stock-based compensation expense was $661,000, greater $716,000 in the comparable quarter a year ago, and $638,000 in the prior quarter. At September 30th, 2022, the company had $38.2 million in cash, cash equivalents, and short-term investments, and $628,000 in long-term investments. compared to $44 million in cash, cash equivalents, and short-term investments of $3.3 million, and long-term investments on March 31, 2022. Working capital was $42.2 million as of September 30, 2022, versus $45.8 million at March 31, 2022, with no debt. Stockholders' equity as of September 30, 2022, was $58.7 million, for under $64.5 million as of the fiscal year ended March 31st, 2022. Given our current cash burn, we remain confident that we have sufficient funds to cover further R&D in the APU platform as we approach breakeven. We're also looking at opportunities to monetize other assets on our balance sheet should additional cash be needed. Given the current global economic environment, Our current expectations for the upcoming third quarter are net revenues in the range of $6.3 million to $7.3 million, with gross margin of approximately 53% to 55%. Operator, at this point, you will open the call for Q&A.
spk08: At this time, we'll 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. Our first question comes from Mike Mork with Mork Capital Management. Please proceed with your question.
spk03: Hi. Good breakout there. Excuse me, Mike. Excuse me. My question is your revenues are $35 million, $37 million, but you're spending $25 million on R&D. That seems exceptionally high. And obviously, hopefully, you're going to get some good products out of that. But are you going to keep that at that $25 million, or is it going to come down? Is it going to go up with revenues? And when do you think you will be at a break-even point?
spk00: Yes, we are looking into it, and we will talk about it in the next quarter, but I think we will size it down, but we want to keep the product going, so we are reviewing this.
spk05: Mike, you still there? Yes, I'm here.
spk02: Yeah. Sorry. The response was that we will be reviewing the R&D costs over this quarter, and it'll be some kind of an announcement by the next call.
spk03: Okay. And how about breakeven? Do you have any guess on that? Is it one, two years out or what?
spk06: We could breakeven in a couple years or so. It really all depends on... what we see from the RAD-hard, RAD-tolerant revenue and APU revenues. They both have very high gross margins, and that, once we start shipping, will lead to breakeven and profitability.
spk05: Okay. Well, thank you.
spk08: Our next question comes from Luke Boney. Please proceed with your question.
spk07: Hi. Back for another call. question about the ELTA deal you also got confirmation I guess all the testing went well for that so wondering what the timeline is for your initial revenue and then if you'll have a roadmap for expanding into other SAR clients through the ELTA platform great question so so we delivered the initial system the POC system to them in the summertime and they're going through their their testing and trials now
spk02: And so they're looking at possibly ordering two more systems that are slightly different in the first half of calendar 2023. And I say slightly different because they have many use cases, which I talked about in my script. As far as other SARs, absolutely. So they're all going to have a slightly different approach, I'm sure, but the meat of what we've done for ELTA will be certainly usable for other SAR manufacturers. As I mentioned, we have everything in line now. We wanted to make sure we had everything available before we put too much hardcore press on them. And so that is done. As I mentioned, all the collateral. We've done all the benchmarking versus CPUs and GPUs. We have all the collateral, all the technical data. And then very recently, we added a demo on our Searchium website that allows customers to actually run our data sets I should say our data sets, run a pre-loaded data set of SAR images so they can see how it works. And so that's all done now, and we've actually already started the outreach to these customers and have already gotten responses and are setting up meetings now. So, yes, this is going to start happening very quickly.
spk07: That's excellent. Do you have any other insight into the SAR market? I'm thinking about you said there are multiple different SAR applications, so kind of heterogeneous. wondering about the timeline of turnover, if you know about the legacy systems and when those are due to be out of date and probably looking to upgrade with you or somebody else. Yeah, I wonder about that and maybe the total SAR market with a quick search looks like about three and a half billion dollars, maybe four.
spk02: Yeah, so when I mentioned we have a flexible system, so the POC we did can put our solution on a It could put it on a satellite. You can have different image sizes from a kilometer to 10K by 10K images. And so, yeah, it's very flexible in what we can do. So most of the folks we're going to deal with are going to want one very specific altitude with one specific image size. And so that's why it's going to be, we're hoping, a little simpler with the guys going forward compared to what we did with the POC with Elta, which was a very broad, widespread POC.
spk05: Okay.
spk07: That's good that you got that work satisfied there. Yes, do you think you'll be able to, or do you have any kind of rough estimate of what percentage of the SAR market you all could possibly address?
spk02: We should have a better feel for it by the next call. As I mentioned, we've done the hardcore outreach very recently, and we have started setting up the meetings, and so it's early right now for me to make that assessment. But by the next call, we should have much more data.
spk07: Okay. Kind of reminds me of a broad question, or not a broad question, but kind of a general question about whether Gemini 2 will vastly increase the performance of Gemini 1, or is Gemini 1, which it seems like to me is sufficiently representing the power of Gemini for prospective clients and customers that are testing it now?
spk00: Gemini 2 will be a drastic improvement, performance drastically improved. So we are looking at maybe an order of magnitude performance improvement. But more important is we... At present, Gemini 1 has APGA on board, and Gemini 2, we don't need that. So from the cost point of view, it's about one quarter of the cost, Gemini 2 over Gemini 1. So if you combine performance and the cost, and also the footprint, and Gemini 2, because of the performance, we can have much less cost than Gemini 1. So if you look at the performance, power, footprint, And the cost, we are talking about more than two-order magnitude improvement over Gemini 1. And Gemini 1, right now, we are very limited on the age application. But with Gemini 2, you know, we can heavily involve or go into the age application. So that's a very exciting prospect of the Gemini 2, and we are very excited about it.
spk07: Excellent. Yeah, I am too. Yeah, so it's very lower of the higher profit margin and higher performance. And, yeah, I was making sure that what you all have currently, which it seems like the platforms you're setting up, yeah, the software service platform, and, oh, that leads me to the other question, the Muse platform that it seems like you all are partnering with and powering, yeah, that you all are using the Gemini One are able to, represent this and give prospective clients a taste of the strength of Gemini so they can extrapolate into what's possible and then potentially start building into this partnership with you now. Yeah, absolutely.
spk05: Yeah, that's kind of the question, and thinking out loud.
spk07: Okay, great. And do you have anything to share about the Muse? I saw the video on the website. but I didn't get a clear sense of what all is going on in the background and what your relationship is with it. Relationship with who?
spk05: With Muse. Oh, Muse. Yeah, okay.
spk02: So right now, the video you're referring to is the multimodal video, yes. So we have been doing some work with them, and that was the first demo and the first program or project, I should say, we worked with them. And like you said, it was certainly a very interesting kind of product solution. We'll be able to go with that. And we're looking to expand that to do other types of applications as well. But, yes, that started – in the summertime and we plan to expand among that relationship.
spk05: Excellent.
spk08: Our next question is from James Popal. Please proceed with your question.
spk01: Hi, thanks for taking my questions today. I had a couple of questions regarding the software that Mr. Hsu had talked about that I believe it was due in July, and it was pushed out to what date now?
spk00: Are you referring to the compiler?
spk02: Yeah, Copperhead, yes.
spk00: Oh, okay. Yeah, right now we are planning to, you know, the early next year, the calendar year, so we can promote it to the better customer and the general availability. So, yeah, we are very close to it now.
spk01: Okay, very good. Why didn't we get it done in July? What's the reason why it's now at the, I guess, in calendar year early 23 now? What happened? Could you explain to us what's going on?
spk02: So it actually is being used right now. So it's being used internally. So all of our algorithms that we're developing now or converting are being used on Copperhead. So it is being used internally, and we do have a few alpha customers. We just wanted to make sure that it was bug-free and all the documentation was ready before we released it to beyond that group. So the answer is it is here now. It's being used now. It's just not released to the general public yet.
spk01: As the first caller said, he said, you guys are burning through a lot of cash. And right now it's at $39 million. That's not unlimited. You know what I'm saying? Especially when we're not generating more cash flows. Hey, could you tell me more about this Rad Heart prototypes and how they could add incremental sales in 23 and 24? How likely is that?
spk02: So we have already shipped out product to about, I'm trying to think the exact number, about eight different entities, and a few of the entities have ordered them for multiple programs. And so they're all prototypes. And so obviously they need to take the parts. Some of them are going to be actually launched. If you recall, we shipped some. Our first RadHard was in June of last year. And at the time, we were told that the satellite would be launched at the end of last year, beginning of this year, which would have given us the heritage. And it still has not been launched. And that is obviously completely out of our control. And so the answer is, um, you know, these, once they do the, the, the proof of concept and the prototyping that it's real, then that's when they go into the production phase. And we don't have that visibility yet on those programs, but certainly we anticipate that some of these programs will certainly go into production. Uh, when that's a good question. Uh, again, it's, you know, when, well, we need, we need income.
spk01: We need, we need more sales. And, uh, You know, we're burning through cash. We have delays in the development of the APU, which actually sounds like it's unique technology based on what you said. And I read the marketing pieces online about the SARS marketing piece. It looks tremendous. But, you know, we have a share price that's trading at or below liquidation value. You know, stocks don't get at those levels for no reason. Usually it's when there's poor execution and by the strategy by the management team. So I guess my point is we're trading at liquidation values. We're not getting any valuation from the APU or even the legacy business, it looks like it too. What could we do about that to get investors to recognize the benefits of this APU and the technology we have? Maybe get some excitement because it doesn't seem to be
spk05: We don't seem to be getting any traction in that area.
spk00: Yeah, APU is a new process coming to the market. So it does take a little time from the design to the product to the revenue generation. I know it's been taking a couple of years. But that is the barrier, the new device we have to go through. And we do have some learning curve going through.
spk01: And hopefully... We need to beat that effort up. One other thing I would like to make a comment about. January 20th of 22, the largest institutional investor in the company made some recommendations to the company that I don't believe any of them have been implemented, at least one. And his recommendation was, he wrote a letter to the board. He recommended the need for a new leadership who's better qualified to execute and lead the company. Right now, we haven't taken any action on his recommendations. And we have a stock trading at, like, basically liquidation value. I highly suggest that the board of directors and Mr. Hsu consider that. I think the company could use a little boost of some sort. to these very exciting technologies, especially APU. Because right now, I don't see it happening. And we are running out of resources. We need to protect that resource so we can get to the next level. But thank you for your time.
spk05: Thanks, Jay. Thank you.
spk08: As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from George Gaspar. Please proceed with your question.
spk09: Thank you. Could you zero in on this commentary on the expectation of a lower revenue stream in the existing quarter that you're in now? Can you tell us where is the lower revenue coming from? Where are you going to have lower revenues? What product line within there?
spk02: So the first one was we shipped a fair amount of revenue associated with that rad hard prototype that I talked about. And as we mentioned, that was a one-off sale until they could go into production. So that was certainly some. We had also two programs that did a buildup of inventory from two separate customers that were significant customers for us. And the backlog... isn't there for this quarter. So we've talked to them, and certainly the products are healthy. They just have gotten into an inventory position. And so that's really the three main areas, and they were significant.
spk09: Well, with that being the case, you can't see or be looking for very much of any kind of actual net revenue in this quarterly from what you're trying to apply into the Gemini market right now, correct?
spk02: It's okay. I'll make sure I have the question correct. So you're asking if this quarter, if the revenue has any APU in it? Correct, correct. So it has minimal revenue. So we do have two customers here. that we will be shipping a system to, and that's for them to do their trials. And so it will have minimal revenues. It's really their demo systems for them to evaluate for future production purposes.
spk09: I see. So there's just nominal. And then, of course, the outlook is going forward beyond this quarter. that we're probably looking at more into what, like the second calendar quarter of next year before something can really develop on the Gemini One in terms of revenue streams, solid revenue stream?
spk02: We don't have a timeline exact because, again, we've had systems in multiple regions company's hands and they're doing their evaluations, they haven't given us an indication on when that would progress beyond that. So to say second quarter next year, I don't know. It could be it may take a little longer.
spk09: I see. Okay, can you answer this question? The relative differential between Gemini 1 and 2, now that you're working forward on Gemini 2, do you think that this might deter companies your potential customers from jumping in and testing and going for actual purchases of Gemini 1 until Gemini 2 is out there where they could compare it with Gemini 1? Can you just explain that a little bit?
spk02: Sure. And this is going to expand what Leline said. Gemini 2 is actually going to really help us more on the edge. I mean, can it do everything Gemini 1 can? Yes. But what we're using Gemini 1 for now is sufficient. I mean, it's, you know, the performance is exceptional. What it lacked, Gemini 1 was, and again, going back to Leline's comment earlier, because of the FPGA that was on the LIDA board with Gemini 1. The cost of the solution was higher. The power, because of that FPGA, was higher. The form factor was higher. With Gemini 2, we don't need that FPGA. So now the edge application, which was a very challenging, if not impossible, edge solution, uh, solution with our part. And so now with Gemini two, we'll, we'll be able to address those edge applications that Gemini one just was not a good fit for. So it's really, we're trying to address a different market, um, with, with the Gemini two. I should say a different application. Really. It's the edge application.
spk09: Okay. All right. And then lastly, um, as far as the total cost structure associated with, uh, stock that's issued to staff. Can you compare the last quarter with the previous quarter? And how many shares are we talking about that are being cased into staff on a quarterly basis at this point in time? And considering the fact that the price is down so far now, how are you going to handle that?
spk06: Well, in the most recent quarter, a quarter ago, I think it was only several hundred thousand shares. It wasn't that much. And for the most part, that is somewhat typical. If you look at the 10Q, you can see the activity for the most recent quarter, the June quarter. You can also look to the 10K. It's got all the activity there. And that should be somewhat a reasonable estimation of what the future might behold.
spk09: Specifically, with the price and where it is now versus what the average price is for the 700,000 shares that you're talking about that were issued in the last quarter, does this suggest that your outlay of shares will be a lot more going forward based on the fact that the price is lower?
spk06: No, we don't issue the shares based on the price. We have a structure within the company based on on uh person's seniority and position and and so on uh i'm sure that kind of position the price has no bearing on it i gotcha okay all right thanks for that explanation thank you our next question comes from chris mckay please proceed with your question
spk04: Yeah, thanks for taking my call. In light of the cash balance, are you expecting a share dilution possibly within the next 12 months? Thanks.
spk05: Are we anticipating issuing more shares? Not at this time. Okay, thanks.
spk08: Ladies and gentlemen, we've reached the end of the question and answer session, and I would now like to turn the call back over to Mr. Hsu for closing remarks.
spk00: Thank you all for joining us. We look forward to speaking with you again when we report our third quarter fiscal 2023 results. Thank you.
spk08: This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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