GSI Technology Inc (GSIT) 2018 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology's Third Quarter Fiscal 2018 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 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 25, 2018, 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 third quarter net revenue of $11.1 million and a gross margin of 51%. Our net revenues came in above the range of guidance that we provided earlier in the third quarter, while our gross margin came in below the range of guidance primarily due to product mix. During the fiscal third quarter, sales to our primary telecommunications and the networking markets continued to show modest decline year-over-year. However, we remain focused on bringing our produced products to market this year. Our resources are aligned to support development and marketing efforts for this newest market segment. The first to market will be our high performance SigmaQuad radiation-hardened SRAM products, target at aerospace and the defense applications. Later this calendar year, we will launch our patented in-place associative computing technology or APU.

In terms of achieving milestones for the launch of new products, we now have packaged parts of our SigmaQuad radiation-hardened SRAM products. We anticipate completion of the design and the layout of our initial APU product by the end of this quarter, and we remain on track to have packaged parts of our APU product line by the end of the June quarter. We now hold 17 U.S. patents and the Longbow pending patent for our APU technology.

And as in previous quarters, we are actively market the APU technology to a range of industry experts and potential end-market consumers across the range of industries.

We recently presented at the Stanford University as a part of their EE Computer Systems Colloquium and at the Global Artificial Intelligence Conference, detailing how our APU helps enable Natural Language Processing, Machine Learning and the Few-Shot Learning. We also presented an ODSC West Webinar and provided training to multiple organizations in the aerospace and the defense sector. Overall, we are confident that we will execute our primary business objectives of bringing our RadHard and APU products to market this calendar year. We anticipated that both products will enable us to enter faster-growing market segments and the vast reporting of customer base and the revenue potential.

For the third quarter of fiscal 2018, we reported a net loss of $1.5 million or $0.07 per basic and diluted share on net revenues of $11.1 million compared to net income of $348,000 or $0.02 per basic and diluted share on net revenues of $11.5 million for the third quarter of fiscal 2017 and a net loss of $1.7 million or $0.08 per basic and diluted share on net revenues of $9.6 million for the second quarter of fiscal 2018, ended September 30, 2017.

Gross margin was 51% compared to 56.6% in the prior year period and 54 -- and 50.4% in the second quarter. In the quarter, gross margins were negatively impacted primarily by product mix and an increase in reserves resulting from the write-down in the value of excess inventory, on products we stockpiled when an assembly vendor was no longer supporting the product line for which we still had forecasted sales. Unfortunately, sales for this product have not met our forecast. This is a unique situation for this particular product as we have not stockpiled other product lines and are comfortable with current inventory viability.

Our third quarter fiscal 2018 operating loss was $1 million compared to an operating loss of $1.8 million in the prior quarter and operating income of $234,000 a year ago. Total operating expenses in the third quarter of fiscal 2018 were $6.7 million compared to $6.3 million in the third quarter of fiscal 2017 and $6.7 million in the preceding quarter.

Research and development expenses were $4.2 million compared to $3.8 million for the prior year period and $4.2 million in the preceding quarter.

Selling, general and administrative expenses were comparable year-over-year at $2.5 million compared to $2.4 million in the third -- in the quarter ended December 31, 2016, and $2.5 million in the preceding quarter.

Total third quarter pretax stock-based compensation expense was $535,000 compared to $508,000 in the prior quarter and $429,000 in the comparable quarter a year ago.

Third quarter fiscal 2018 net loss included interest and other income of $99,000 and a tax provision of $590,000 compared to $61,000 in interest and other income and a tax benefit of $53,000 a year ago. In the preceding quarter, net loss included interest and other income of $103,000 and a tax provision of $49,000.

On December 22, 2017, the Tax Cuts and Jobs Act was signed into law, significantly impacting several sections of the Internal Revenue Code. This legislation resulted in a net tax provision of $540,000 for the quarter ended December 31, 2017, that is included in the 596 -- $590,000 tax provision mentioned previously.

In addition, the company recorded a liability for taxes payable of $68,000 at December 31, 2017, that will be paid over a period of up to 8 years.

In the third quarter of fiscal 2018, sales to Nokia were $3.9 million or 34.7% of net revenues compared to $2.8 million or 29% of net revenues in the prior quarter and $4.5 million or 39.5% of net revenues in the same period a year ago. Direct and indirect sales to Cisco Systems were $565,000 or 5.1% of net revenues compared to $506,000 or 5.2% of net revenues in the prior quarter and $1.1 million or 9.8% of net revenues in the same period a year ago.

Military/defense sales were 20.7% of shipments compared to 24.4% of shipments in the prior quarter and 15.9% of shipments in the comparable period a year ago. SigmaQuad sales were 54.5% of shipments compared to 39.4% in the prior quarter and 54.2% in the third quarter of fiscal 2017.

At December 31, 2017, the company had $56.8 million of cash, cash equivalents and short-term investments; $8.2 million in long-term investments; $63.7 million in working capital; no debt and stockholder's equity of $85.5 million.

Looking forward to the fourth quarter of fiscal 2018, we currently expect net revenues to be in the range of $10 million to $11 million. We expect gross margin of approximately 53% to 55% in the fourth quarter.

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

(Operator Instructions) And our first question comes from the line of Mike Crawford from B. Riley.

This actually [Samir] on for Mike. So I just have a quick follow-up question on the opportunity in Machine Learning coming to the APU technology. Could you, kind of, try to quantify what you kind of see is the kind of net market size in Machine Learning which you guys have from full-shot and one-shot learning based on this new APU technology?

So this is Didier. We are still going through market data but certainly, the market isn't always broken up exactly the way that we're going to be addressing it and depending on the reports we see. But certainly, everything that we've seen have been in the billions of dollars for market opportunities. And as a -- outside the training because I think we've talked about certainly, the training is an area that we'll be focusing at some point. But imprints and Natural Language Processing, data lining, recommender systems and searches, we'll be addressing first because that's where we have the largest advantages. And those markets are certainly, in the billions of dollars.

Got it. Makes sense. And could you also give us a sense on, I think you mentioned full-shot learning in the call earlier? What about opportunities like one-shot or few-shot learning?

Yes, definitely. I think that's how we mean. Few-shot doesn't mean the one-shot and the low-shot at all.

And our next question comes from the line of Robert Mertens from Needham & Company.

I just wanted to get a little bit more clarity about your SigmaQuad product for the satellites. Just sort of your progress on that technology. Are you currently shipping or taking out the product on this quarter?

So first of all, let's be clear. It's not just for satellite, it's also for missiles. And I say that because our first identified opportunity will actually be for missiles. And for the product right now, we've had -- we have samples, we've had a little bit of push out from the customer. We talked about this on the last earnings call, where the IRAD dollars have been pushed out 6 to 9 months. So it's given us a little bit time to make the part even more robust and increase the yields. So we do have parts now, we are making a slight tweak to make it even better. But that will be certainly, well ahead of the schedule of our customers, which would be around the December timeframe of this calendar year.

Okay, great. That's very helpful. And I'm sorry, I think I just missed that you mention a product line that was on the shelf and was it discontinued? Could you just give a little bit of clarity there?

No, no. It's not a discontinued product, it's our lower-density LLDRAM product. About 1.5 or so ago the vendor that was doing the assembly of that product discontinued supporting the package the product was assembled in. So we assembled all of the dye that we had. And we just haven't seen the revenue that we had expected or anticipated at the time materializing to the levels that we would have liked. So we have consciously have recorded looking at our inventory and decided that we needed to take some inventory reserves related to that. But there's nothing wrong with the product that has a very long shelf life, very long product life cycle. It's just that we haven't seen the business that we were anticipating.

Okay, great. Thanks for the clarification. And as one last one if I could squeeze in. In terms of gross margin which guided to next quarter, is that sort of what we can think about the run rate there? I know some of the businesses are a little bit lumpy. But trying to get an idea of where you guys are at longer term?

Yes, longer term, let me just talk a little about where we've been. In the recent past or last couple of years or so we've been in the mid-50% range. And obviously, with the RadHard part, we know where our margins are going to be in that because of the nature of that business and we are doing work with in terms of manufacturing, we know our margins in that business will be 85% at a minimum. And then in terms of the APU, we believe that those margins should be better than our corporate average. So long term, the information that we're looking at is that we would expect that our gross margin to be somewhere in the 59% to 63% range. So certainly, we would hope it to be above 60% in the next couple of years.

And our next question comes from the line of Jeff Bernstein from Cowen.

Just a quick follow-up on the RadHard SigmaQuad. I think at Needham, you guys said that -- so the revenue -- you had expected to maybe have some revenue earlier in the year that, that's was going to be at year end but that you had added either another customer or someone else who had interest. Could you just clarify that and talk about that a little bit? And I think you said that the ASP on that part was going to be $30k. Is that right?

Correct. So we have 2 offerings, the first one we've been talking about is the 288-meg SigmaQuad-II+. And then we also have introduced or will be introducing shortly, a 144-megabit SyncBurst NBT, so that one of the -- not quite that ASP but the 288-megabit, which is the first revenue we're targeting is round numbers of around $30,000 a part. And when we say we added a program, what that meant was we actually -- there were 2 different programs that were very similar in nature as far as the design goes. One of them was funded and is funded for the end of this year. The other one hasn't got the funding yet but it looks like may happen. So we may have both programs ship in the December quarter. And so if that happens, then that number -- that revenue numbers will be just slightly larger than we had anticipated, our first production order to be.

(Operator Instructions) And our next question comes from the line of Kurt Caramanidis from Carl M. Hennig.

Can you talk a little bit about how that Stanford relationship is coming? You kind of talked about how Nvidia had did some work with academia, and that kind of helped with different uses and just where that's at with -- after that conference you went to -- Seminar you did I guess at Stanford?

Yes, so it’s – certainly, that's going to be a focus going forward for us. And what I mean is when we do have eval or demo boards, we certainly want to put them in the hands of academia. And that's always kind of been a strategy in which certainly we're focus on it. The Stanford opportunity came to us and we certainly jumped at the occasion to present there. So other type of university talks open up, we'll take them on a case-by-case basis, but certainly, academia will be a focus for us because that's an area that can really help drive our ecosystem for this particular family.

Okay, great. And then could you get on the website that webinar that was recently done? At least the slides, if not the presentation, because that was quite interesting and I can't find that anymore to kind of review it. Because I thought there were some speed demos on some search. But it went by so fast and then I didn't get to see it again. Is that possible?

Yes, Kurt, this is Doug. Yes, I've already put out a request for that. We just haven't got back from the group that we did the webinar with. But we will definitely get it and put it on the website.

Okay, great. Yes, because it showed how -- where your niche is and the differences and things, I think that's a good helpful thing.

And our next question comes from the line of Jim Kennedy from Marathon Capital.

Quick question for you on APU. When you do -- when it is ready to put into some customer's hands or potential customers hands to look at, do you anticipate equal demand at that point from government and nongovernment sources? Or would one be preferred over the other in terms of testing it and looking at it?

No, I mean, there is certainly is a line of focus at one early access. And it's both on the classic big data guys and the government. So I mean, certainly, I don't anticipate us favoring one over the other, the interest is heavy from both sides and we certainly want to make sure that we get boards into both entities or both segments, I should say.

And that concludes our question-and-answer session today. I would now like to turn the call back over to Lee-Lean Shu for closing remarks.

Thank you all for joining us. We look forward to speaking with you again when we report our fourth quarter fiscal 2018 results. Thank you.