GSI Technology, Inc. — Q3 FY2022 Form 10-Q
Reporting period: Quarter and nine months ended December 31, 2021. Financial figures below are in U.S. dollars; balance-sheet amounts compare with March 31, 2021 unless noted.
Business context
GSI is a fabless semiconductor company designing and selling Very Fast SRAMs, primarily for networking and telecommunications, and developing in-place associative computing (APU) products. SRAM accounted for approximately 98% of revenue for the nine-month period. Nokia remained the largest customer. The company reported one operating segment.
Financial performance and liquidity
| Metric | Three months ended Dec. 31, 2021 | Prior-year quarter | Nine months ended Dec. 31, 2021 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $8.1 million | $6.8 million | $24.7 million | $20.0 million |
| Gross profit / margin | $4.5 million / 55.3% | $3.2 million / 47.3% | $13.4 million / 54.4% | $9.4 million / 46.7% |
| Operating expenses | $9.0 million | $8.3 million | $26.8 million | $25.4 million |
| Operating loss | $4.5 million | $5.2 million | $13.4 million | $16.0 million |
| Net loss / diluted loss per share | $4.6 million / $0.19 | $5.2 million / $0.22 | $13.4 million / $0.55 | $16.5 million / $0.70 |
| Cash used in operating activities | Not presented quarterly | $9.9 million | $11.4 million |
Revenue grew 19.3% year over year in the quarter and 23.0% over nine months. Management attributed higher gross margins primarily to product and customer mix. Nine-month unit shipments rose 7.7% and average selling price rose 10.6%; for the quarter, shipments increased 13.7% and average selling price increased 4.2%.
At December 31, cash and cash equivalents were $36.3 million, short-term investments $11.8 million, and long-term investments $3.4 million, totaling $51.5 million. Cash, cash equivalents and short-term investments totaled $48.1 million, down from $54.0 million at March 31. The company reported no debt. Total liabilities were $12.9 million and stockholders’ equity was $66.8 million. Nine-month investing cash use was $0.3 million; financing provided $2.4 million, primarily from employee stock plans.
Material changes and notable items
- Higher revenue and gross profit were partly offset by increased R&D and selling, general and administrative expenses. R&D increased 5.5% over nine months, reflecting primarily higher payroll costs.
- Direct and indirect Nokia sales were $7.6 million for the nine months, down from $8.1 million in the prior-year period. Nokia represented approximately 31% of nine-month revenue, versus 40% previously.
- A 20% increase in wafer costs was expected to begin in early calendar 2022; the company also announced a 20% customer price increase effective December 1, 2021.
- Nine-month income taxes included a $220,000 benefit from retroactive approval of a preferred-company tax rate in Israel. The prior-year period included a $479,000 discrete tax provision related to an Israeli tax audit.
- Share count increased to 24,482,552 at December 31, 2021, principally reflecting employee stock-plan activity. No shares were repurchased during the quarter.
Outlook, management commentary and risks
Management said existing cash, investments and expected operating cash flows should fund working capital and capital expenditures for at least 12 months, with no current expectation that additional cash infusions will be required. No quantified revenue or earnings guidance was provided. Management expects continued substantial R&D investment, particularly in APU, and acknowledged possible operating losses.
- COVID-19 restrictions continued to affect customer demand, sales activity, new-market engagement and customer buying patterns. Management expected adverse effects to continue through the remainder of fiscal 2022 and into fiscal 2023.
- Supply-chain shortages, supplier price increases and COVID-related disruption to manufacturing partners in Taiwan were expected to constrain fulfillment in the near term and into calendar 2022. Management did not expect significant relief from supply constraints before the end of calendar 2022.
- Manufacturing depends heavily on single-source suppliers, including TSMC for wafers and ASE for much of product packaging. Taiwan operating, geopolitical and natural-disaster risks are also material.
- Revenue is exposed to customer concentration, cyclical networking and telecommunications markets, order cancellations or deferrals, distributor inventory patterns, and declining product prices. Nokia accounted for 31% of nine-month revenue; Avnet Logistics represented 35.6%.
- Three customers accounted for 51%, 23% and 12% of accounts receivable, respectively. Purchase obligations totaled $3.4 million, including $2.0 million due within 12 months. MikaMonu contingent consideration was $4.3 million, payable at various dates through December 31, 2025.
- Commercial adoption and successful launch of APU products remain uncertain. Management also noted potential pandemic-related impairment, operating and liquidity effects. Disclosure controls were reported effective, with no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether wafer, assembly and testing supply constraints and the announced cost and customer-price changes affect fulfillment, demand and gross margins as expected.
- Whether revenue growth is sustainable given Nokia’s contribution, distributor concentration and the company’s reliance on SRAM markets.
- APU product milestones, customer adoption, commercialization costs and potential contribution to future revenue.
- Cash burn relative to the $51.5 million of cash and investments, including the $3.4 million of purchase obligations and contingent consideration.
- How COVID-19 and Taiwan-related manufacturing and geopolitical risks affect operations, customer demand and the company’s stated liquidity outlook.