GSI Technology Inc (GSIT) 2017 Q1 法說會逐字稿

Welcome to GSI Technology's first-quarter fiscal 2017 results conference call. (Operator Instructions).

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 involves 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 call is being recorded today, July 28, 2016, at the request of GSI Technology.

Hosting the call today is Lee-Lean Shu, the Company's Chairman, President, and Chief Executive Officer. With him are Douglas Schirle, Chief Financial Officer, and Didier Lasserre, Vice President of Sales.

I would now like to turn the conference over to Mr. Shu. Please go ahead, sir.

Good afternoon, everyone, and thank you for joining us.

Today, we reported preliminary first-quarter revenue of $12.9 million. That came in within the range of guidance that we had provided earlier in the quarter, and we witnessed a return of profitability on both the operating income and net income levels.

As in recent and previous quarters, our gross margin came in above our operating model at 51.9%, driven by a continuing favorable mix of higher-margin products. As such, during the first quarter we continued to see slowness in our primary telecommunications and networking markets, and along with continued weak sales in Asia and Europe.

However, our litigation-related expenses were inconsequential as a result of the conclusion of the United Memories and the Integrated Silicon Solutions trade litigation trial in December 2015 and the five-year period of expensive and time-consuming legal proceedings is now behind us.

As we look forward, we are focused on expanding our market position in the high-speed SRAM and the low-latency DRAMs [Sigmas] and the developing exciting new products based on all associated computing technologies and the intellectual property obtained in our acquisition of MikaMonu last year to exploit large potential opportunities in Big Data, computer vision, and cybersecurity.

With promising new products and exciting acquisitions and accompanying technologies and improving ongoing profitability, we're optimistic about the year ahead of us.

We recorded net income of $260,000 or $0.01 per diluted share on net revenues of $12.9 million for the first quarter of fiscal 2017, compared to a net loss of $917,000 or $0.04 per diluted share on net revenues of $14 million in the first quarter of fiscal 2016 and a net loss of $87,000 or $0.00 per diluted share on net revenues of $12.2 million in the fourth quarter of fiscal 2016, ended March 31, 2016.

Gross margin was 51.9%, compared to 52% in the prior-year period and 50.3% from the preceding fourth quarter. First-quarter fiscal 2017 operating income was $389,000, compared to operating losses of $156,000 in the prior quarter and $1 million a year ago.

Total operating expenses in the first quarter of fiscal 2017 were $6.3 million, compared to $8.3 million in the first quarter of fiscal 2016 and $6.3 million in the preceding fourth quarter.

Research and development expenses were $3.5 million, compared to $3 million in the prior-year period and $3.4 million in the preceding quarter. Selling, general, and administrative expenses, which include litigation-related expenses, were down substantially year over year to $2.8 million, compared to $5.3 million in the quarter ended June 30, 2015, and down sequentially from $2.9 million in the preceding quarter.

Total first-quarter pretax stock-based compensation expense was $443,000, compared to $463,000 in the prior quarter and $474,000 in the comparable quarter a year ago. Depreciation and amortization expense was $424,000 in the first quarter.

Sales to Alcatel-Lucent were $5.4 million or 41.9% of net revenues during the first quarter, compared to $4.3 million or 35.1% of net revenues in the prior quarter and $4.5 million or 32.1% of net revenues in the same period a year ago.

First-quarter direct and indirect sales to Cisco Systems were $1.5 million or 11.7% of net revenues, compared to $1 million or 8% of net revenues in the prior quarter and $1.3 million or 9.5% of net revenues in the same period a year ago.

Military defense sales were 12.5% of shipments, compared to 19.5% of shipments in the prior quarter and 19.4% of shipments in the comparable period a year ago. SigmaQuad sales were 55.7% of shipments, compared to 53.5% in the prior quarter and 51.9% in the first quarter of fiscal 2016.

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 the open market or in private transactions. The specific timing and amount of repurchases will be dependent on market [positions], security law limitations, and other factors. The repurchase program may be suspended or terminated at any time without prior notice.

During the quarter ended June 30, 2016, we repurchased 963,738 shares at an average cost of $4.05 per share for a total cost of $3.9 million. To date, the Company has repurchased a total of 11,304,239 shares at an average cost of $5.08 per share, for a total cost of $57.4 million, including 3,846,153 shares acquired for purchase at a purchase price of $6.50 per share under a modified Dutch auction self tender offer completed August 2014.

At June 30, 2016, management was authorized to repurchase additional shares of our common stock with a value of up to $7.6 million under the repurchase program.

At June 30, 2016, we had $50 million in cash, cash equivalents, and short-term investments; $9.4 million in long-term investments; $60.7 million in working capital; no debt; and stockholders' equity of $87 million.

Accounts payable at June 30, 2016, was $2.1 million, compared to $2.5 million at March 31, 2016. Net inventory was $7.6 million at June 30, 2016, up from $7.2 million at March 31, 2016. Inventory turns at June 30, 2016, were 3.3 times, compared to 3.4 times at March 31, 2016.

Looking forward to the second quarter of fiscal 2017, we currently expect net revenues to be in the range of $12.6 million to $13.6 million. We expect gross margin of approximately 49% to 51% in the second quarter.

Operator, at this point we will open the call to Q&A.

(Operator Instructions). Kurt Caramanidis, Carl M. Hennig, Inc.

Amazing buyback, very, very happy with the amount of shares you got and the price you got. Can we read confidence in your new product line into the amount of shares you're buying back?

You really can't relate one to the other. We are not buying shares ourselves. We are not placing orders. Everything is under a 10b5-1 plan at Needham and they have parameters that they can buy to, and when shares are available, they buy shares.

Right, no, I get that. You just were able to -- they did a terrific amount of shares at a good price. But you are -- it seems as though that's fairly aggressive. I guess that was my only point. Is that -- but that's okay. A question for you, can you (multiple speakers). Go ahead.

I guess to answer your question, we are very excited about the associative processor opportunity we have. We continue to feel very good about that. We're getting a lot of feedback, positive feedback, from potential customers we are talking to. So, yes, we feel very good about that product.

And secondly, we feel that the Company is worth a lot more than $4 or $5 a share and we think that buying back the shares benefits everyone that stays on the stock. We feel it is a good value.

Well, we would definitely agree. We couldn't be happier.

Question on the associative computing. Is that going to be incremental as far as when the products are launched? Should we view that more as an incremental add, as a possible transformational add? How should we view that?

Versus our current SRAM product and LLDRAM product line, are you referring to?

Yes.

Yes, it's completely incremental. In fact, it is different customers as well. So we're addressing a different market space with different customers, so it will be -- it won't be additional to our current product offering and revenues.

Right, right. I guess what I'm saying is the level, the volume, the dollar opportunity modest or is it more exponential?

So we haven't talked about any of those numbers to date, but certainly we anticipate it to be larger than what we are doing today.

Okay, great. Is there any way to increase the investment and maybe shorten the window a little bit or is it like we have to spend so much time and that's just the way it is as far as next summer having some samples and next -- the end of next year having product?

Yes, unfortunately, it is very hard to shorten the product cycle. It doesn't matter how much you [have inventoried in]. We certainly want to put our [best] capital aside to put on the product. [That's basically think of] how we're doing. And the schedule in properties is the best effort, and basically we don't spare any resources or the effort trying to do that.

Okay. So we're still looking at about a year to have some kind of samples and about 18 months or so to hit the market with some things?

No, right now we -- the plan is to came out along calendar-year 2017 fourth quarter, and if everything goes well, we should have a sample in the mid-2018.

And those are consistent with the dates we've talked about before.

Are we talking calendar now or fiscal?

(multiple speakers) talking calendar.

Okay, I was thinking it was mid-2017 and then at the end of 2017, there were some products. So it is not; it is the end of 2017, mid-2018?

Yes, when we did the acquisition in November of last year, we were looking at a two-year cycle to get the product taped out, and we haven't changed that yet. We're still looking at the same timeline.

In fact, the Board wants us to do whatever we can to do it sooner, and as Lee-Lean says, we will do everything we can to get it out sooner if we can, but we don't see right now any risk of meeting those dates.

Okay. And then, are you going to do any kind of -- in the next six months or so a roadshow of any type or just some conferences to let people know? I don't think anybody really is aware of any of this would be my guess, just by the way the stock has acted.

We do go talk to people, and as we have more to say about this product and we have more that we can disclose, we definitely will do that.

Okay, great. That makes sense.

Kurt, we have been to one conference shortly after we made the acquisition and it was discussed during that conference. But I think certainly it's not revenue that was imminent, so I think -- I am not sure we are going to get the credit for a little while until we get a little closer.

Yes, that makes sense. Okay, thanks a lot. Great quarter for a buyback, though.

Austin Hopper, AWH Capital.

Jim Roumell, Roumell Asset Management.

Wondering again if you could just provide in as simple language as you can, and perhaps one of the technologists on the call, the patent protection on the associative processing technology. I guess one of the things that I think investors are interested in learning about, as exciting as this technology is, and any kind of general color or feedback you've gotten from people you have shown the technology to would be helpful. But equally so is why can't this be -- how is this differentiated? Why can't it be knocked off down the street? Just some of the moats, if you will, that protect the technology that you acquired from MikaMonu?

(multiple speakers) the patent protection.

Yes, yes, but the patent really -- the way the associative computing work is we do the [location] or logic operation in the memory array, and the pattern we got basically is surrounding that basic technology. So, that's a very -- it's actually different what, today, what people are doing in the processor, microprocessor design.

So, that's why we believe we -- that's the pattern that we -- basically, things really are not -- we don't really have all other people doing that and we are pretty well defined in that technology. That's why we believe we have a patent protection in that area.

Yes, I think it was about a total of about 15 patents or so we got when we did the acquisition, and there have been others that have been applied for subsequent to the acquisition. In addition, we have had one or two additional patents granted since the acquisition. So, we just feel that we have pretty strong protection against the architecture and how the part works and what it does.

Got it. And the feedback you've gotten from customers, the favorable feedback you have gotten from customers that you've shown the technology to, the speed, the efficiency, and whatnot, they are basically not another chip that is effectively equaling the features of this technology?

So we went through this process during the due diligence when we were acquiring MikaMonu, and certainly the very large companies that we were discussing MikaMonu with had told us that they had surveyed all the technologies that were out there and that were coming and nothing touched this.

And certainly, the conversations we've continued to have to date with these large Big Data guys, there is certainly no indication that there is anything that touches the technology at this point, or that they have seen or have been told is coming.

And when you talk about Big Data users, the normal usual suspects, Amazon and et al., a lot of these Big Data processors of Silicon Valley.

That's correct.

Okay, thank you.

Austin Hopper, AWH Capital.

Thanks for taking my question, and thanks for all the updates on MikaMonu. Could you just -- I dropped off for a second, can you tell us what the investment is on a quarterly basis expense wise on MikaMonu? Great, thank you.

Yes, we are looking at additional spend over and above what we currently have in place, so maybe the range of a couple million dollars or so a year, maybe $2.5 million in terms of added cost.

There are some other things we're looking at that could be significant in terms of $1 million or $2 million by seats, but we're still taking a look at how we want to put the chip together fully. We feel that we've got plenty of cash in the bank. If you take a look at our current product line and the offerings and gross margins and the ability to generate cash, we should be able to stay in the range of cash flow neutral or positive, depending on how far we go in terms of accelerating this for the Board. So, we don't really right now see an issue in terms of being able to fund this.

No, I don't see an issue in funding. I am just trying to -- so what did you spend in the quarter?

In the quarter, probably in the range of about $400,000 or $500,000.

$400,000 or $500,000, and you think incrementally it would be more than that?

Well (multiple speakers), that's for the quarter. If you four times that and we add some additional resources, we're probably in the (inaudible) around $2.5 million range now.

Okay, great. Thank you.

George Gaspar, Private Investor.

Very nice stock buyback. My first question on it, the share count outstanding currently is how much? How many shares?

In the range of 21 million.

21 million, and you've repurchased 11 million now, correct?

(multiple speakers) over 11 million.

Okay, so you have effectively passed the one-third stock buyback --

Yes.

-- in your -- that's very impressive, and considering your financial capability that you have and you are doing all this R&D staff now, building that up. Question on the revenue side, it looked like the Cisco sales picked up?

That's correct.

Is there something new going on there in terms of where you are supplying SRAM into at Cisco that has turned this around? Can you talk about that at all?

So for this past quarter, the bump that we had was more along the lines of another competitor having an issue that we filled (multiple speakers) their delinquency.

I see, I see. Okay. And then a question on -- as you are moving forward here on your general SRAM business and applications, are you seeing new application opportunities over the near intermediate term for you or has something been demonstrated already in the recent past quarter?

We actually have started to see some new revenues with the new products that we introduced last year and a little bit into the year before, which is specifically our 144-megabit SQ-III and also the SQ-IV. We have gotten a few design wins and some of the prototype orders for those.

And then, also, what has ramped quicker than I expected was actually our 288-megabit SQ-II and SQ-III, so these are density upgrades over the 144 megabit, and we have actually seen a fair amount of wins there. The volumes haven't been enormous yet, but certainly it is all new design wins and it is trending positively, so we're excited about that.

That's excellent. It is very good. And based off of what ARRS reported today in terms of their results, things seem to be going very well in terms of upticking in what should be the generalization of the area of activity that you are in on the revenue side, which is very positive. Thank you very much.

(Operator Instructions). It appears there are no further questions from your audience.

Thank you all for joining us. We look forward to speaking with you again when we report our fiscal second-quarter 2017 results. Thank you.

This does conclude today's conference. We thank you for your participation. You may now disconnect.