GSI Technology, Inc. (GSIT) on Q3 2021 Results - Earnings Call Transcript
Executives: Lee-Lean Shu - Chairman, President, and CEO Didier Lasserre - VP of Sales Douglas Schirle - CFO
Analysts: Kurt Caramanidis - Carl M. Hennig
Operator: Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology's Third Quarter Fiscal 2021 Results Conference Call for the Quarter Ended December 31, 2020. 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&A. Before we begin today's call, 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 have also been asked to advise you that this conference call is being recorded today, January 28, 2021, at the request of GSI Technology.
Lee-Lean Shu: Good afternoon, and thank you for joining the call today to review our third quarter 2021 financial results. As I look back at 2020, and where we were a year ago, I am pleased with our progress. GSI entered the first quarter of calendar year 2021 with the Gemini APU launch in progress. Our team is building new relationships with customers in many sectors where the APU can deliver radical performance improvement in search applications. We have engaged a PR firm to build awareness and improve our evolutionary technologies' feasibility. Feedback has been good. And we are encouraged by the reception to Gemini. The next step is to allow customers access to the system. This time last year, we had prepared a testing and training facility at our Sunnyvale, California headquarters. Unfortunately, COVID had made this option unavailable, and instead of bringing group into our facility, we have had to pivot. The result is there'll be more one-on-one approach. Our cloud-based APU testing servers are now up and running in both of our facilities, in Israel and in Sunnyvale. These servers allow customers to remotely load their databases onto the APU and test the device's performance with their proprietary data and applications. I am pleased that we can now interact with our prospective customers and give them access to evaluate Gemini. The remote process is less efficient than our original workshop setup, but is the best option we have under the circumstance. As I stated on our last earning call, our software capability makes the APU highly effectible to view applications. Software enhancements continue to improve the device's performance, and we have successfully doubled, in some cases tripled the system performance on response time. Next month, we will release the compiler stack for Python, a critical step for growing the APU ecosystem. We plan to follow with the complier stack for C++ later this year. GSI has built an exceptional software team, as evidenced by their superlative work to win first-place in the Israeli Ministry of Defense MAFAT Challenge. The challenge's goal was to completely grow the potential of advanced data science measure to improve the Israeli Ministry of Defense current data products. The challenge was to distinguish between humans and animals in radar signal segments with the greatest accuracy. This was a complex challenge for the GSI team, who had no prior experience in radar systems or signals. When their initial research from very few reference levels works it was clear that this challenge requires unique solutions. Leveraging the algorithms, we have developed on other search projects we developed an algorithm to train a CNN model to best predict the outcome. As a result of winning automatic challenge, MAFAT has introduced GSI to key Israeli aerospace and defense companies for several defense projects, as well as providing opportunities to work with market to grow several computation projects employing all APU.
Didier Lasserre: Thank you, Lee-Lean. As Lean just explained, in addition to a novel architecture, APU has a strong software offering, GSI software expertise combined with the high performance APU hardware solution is a competitive advantage versus AI solutions that are typically siloed in either software or hardware. We plan to offer the compiler and the libraries with the device, and depending on the application, we may also sell the API and the algorithms. Our software allows us to improve device performance for various applications without altering the hardware.
Douglas Schirle: Thank you. Didier. We reported a net loss of $5.2 million or $0.22 per diluted share on net revenues of $6.8 million for the third quarter of fiscal 2021, compared to a net loss of $4.6 million or $0.20 per diluted share on net revenues of $10 million for the third quarter fiscal 2020, and a net loss of $5.2 million or $0.22 per diluted share on net revenues of $6.7 million for the second quarter of fiscal 2021. Gross margin was 47.3% compared to 60.2% in the prior year period and 46.7% in the preceding second quarter. The change in gross margin was primarily due to changes in product mix sold in the three periods. Total operating expenses in the third quarter of fiscal 2021 were $8.3 million compared to $10.8 million in the third quarter of fiscal 2020 and $8.3 million in the prior quarter. Research and development expenses were $5.7 million compared to $8.2 million in the prior year period and $5.7 million in the prior quarter. The increase in R&D expenses for the third quarter of fiscal 2020 reflected a charge of $2.7 million for purchased intellectual property as being incorporated in the next generation of our Gemini chips.
Operator: Thank you. Our first question comes from Kurt Caramanidis with Carl M. Hennig.
Kurt Caramanidis: Hey, guys. Are you still on lockdown, or have you recently reopened after inauguration in California?
Lee-Lean Shu: No, we still work from home. I think …
Kurt Caramanidis: Still lockdown?
Lee-Lean Shu: Yes, probably until summer.
Kurt Caramanidis: Until summer?
Lee-Lean Shu: Yes. The way things are going here, I've been very surprised that we didn't come back to work until closer to summertime, but I think everyone is working pretty efficiently. The Gemini-II design is progressing. I've gone through a year-end audit and several quarter reviews without even seeing the auditors, so it works, it's not as efficient, but it does work.
Kurt Caramanidis: Well, I guess it's still going to be and still a problem with through the summer. I was just curious when that might. And then, facial recognition, has that been banned yet or what's the current status of that? I know that was a big part of things, and then there was superior companies getting out. I don't know what the government's position now is, if we want to stop there, or what can you say about facial recognition now?
Didier Lasserre: So, we're still moving ahead with it, because again, there're many sectors in the facial recognition. Some of the folks that we've been talking to, when I say, "Folks," the potential customers, they're in niche markets under facial recognition. One of them was working on facial recognition for things like conferences, for things like entering arenas like football arenas. So, there are a lot of different segments that fall under facial recognition. So, I haven't heard of any ban, and we're certainly moving forward under those types of niche applications.
Kurt Caramanidis: Okay. And then, are we looking at -- you think 12 to 18 months before we would see revenue from one, and then obviously later than that two?
Didier Lasserre: You're talking Gemini-I and Gemini-II?
Kurt Caramanidis: Yes.
Didier Lasserre: Yes. So Gemini-I, we'll see some certainly in the first half of this year, we'll see some demo boards being purchased still in the first-half. It's not clear again. We're still on the designing phase at this point. So, it's not clear what kind of volume we'll see in the second-half of this year yet. It's too early for us to project. As far as Gemini-II, it's going to be a while, right? As Lee-Lean mentioned, we will see a tape out at earliest at the end of this year, which means we'll see first silicon sometime in the kind of first, second quarter, calendar quarter I should say of 2022. And then there's a debug process. So, I don't see us having fully functional part on that until sometime in 2023.
Kurt Caramanidis: Yes. Now is the 600 megahertz, I didn't see a mention of that, but are you working on it, was that going to be for 400 to 600, is that getting -- where's that ?
Lee-Lean Shu: Yes, yes, yes. We are still moving forward with new silicon, and new silicon is much improved, both in performance and the functionality, and also the manufacturing yield. So we're going to take this one to the production and with .
Kurt Caramanidis: Okay, great. So, final thing, I'm seeing a lot of shortages in silicon, price increases in chips. What affect does that, if any, have on you guys' net? It just seems like everything is tight right now.
Douglas Schirle: You're correct, everything is tight. So we actually did see some of the tightness late last year already, and were able to address some of it. As you mentioned, some of our costs have gone up. And certainly the lead times have gone out. And so we plan accordingly. So we've put in some material, and so far it affected some revenue, but as you could see by this last quarter and the quarter we've just guided to, we're still managing to grow slightly. And as far as the price increase, we are going through that process now. Unfortunately, with our costs going up we have to also increase our retail to the customers, and so that's happening now.
Kurt Caramanidis: Okay, great. Thanks, guys.
Douglas Schirle: Thanks, Kurt.
Operator: Thank you. And that does conclude the question-and-answer session. Mr. Shu, I'll now turn the conference back over to you for any additional or closing remarks.
Lee-Lean Shu: Thank you all for joining us today, and we look forward to speaking with you again when we are ready for our fourth quarter fiscal 2021 result. Thank you.
Operator: Thank you. That does conclude today's conference. We do thank you for your participation. Have an excellent day.
