GSI Technology, Inc. — Form 10-Q Summary
Reporting period: Quarter and six months ended September 30, 2021 (fiscal 2022 second quarter). Amounts are in U.S. dollars; financial statement figures are in millions unless noted. GSI designs and sells integrated circuits, principally Very Fast SRAM, and is developing in-place associative computing products (APUs).
Financial performance
| Metric | Quarter ended Sept. 30, 2021 | Year-over-year change | Six months ended Sept. 30, 2021 | Year-over-year change |
|---|---|---|---|---|
| Revenue | $7.80 million | +17.1% | $16.59 million | +24.9% |
| Gross profit / margin | $4.18 million / 53.6% | Margin: +6.9 percentage points | $8.96 million / 54.0% | Margin: +7.6 percentage points |
| Operating expenses | $8.69 million | +5.2% | $17.84 million | +4.9% |
| Operating loss | $4.52 million | Improved from $5.15 million | $8.88 million | Improved from $10.85 million |
| Net loss / diluted loss per share | $4.57 million / $0.19 | Improved from $5.23 million / $0.22 | $8.78 million / $0.36 | Improved from $11.31 million / $0.48 |
Gross-margin improvement reflected product and customer mix. For the quarter, average selling price rose 5.6% and units shipped rose 3.4%; for the six-month period, they increased 14.1% and 4.7%, respectively. The filing attributes average selling-price gains chiefly to a greater mix of higher-density products.
- Cash and liquidity: At September 30, cash and cash equivalents were $40.94 million, short-term investments $9.79 million and long-term investments $2.76 million, totaling $53.5 million. Cash plus short-term investments was $50.7 million, versus $54.0 million at March 31, 2021.
- Cash flow: Six-month operating cash use was $7.38 million, compared with $8.30 million a year earlier. Investing activities provided $2.49 million, mainly from investment maturities; financing activities provided $1.60 million from employee stock plans. Cash decreased $3.29 million during the period.
- Debt and obligations: The company reported no debt. It had $4.27 million of non-current contingent consideration related to the MikaMonu acquisition and $0.49 million of operating lease liabilities.
- Balance sheet: Total assets were $81.56 million and stockholders’ equity was $69.92 million at September 30, compared with $87.61 million and $75.59 million, respectively, at March 31.
Material changes and business mix
- Revenue growth accompanied a reduced quarterly loss, while operating expenses continued to exceed gross profit. Six-month revenue from distribution rose to $10.21 million from $7.11 million; contract-manufacturer revenue was nearly unchanged at $5.85 million.
- Nokia remained the largest customer, representing approximately 34% of six-month revenue, down from 39% in the comparable 2020 period. Direct and indirect Nokia sales fell year over year in the quarter but increased for the six-month period; the filing notes approximately $1.1 million of buffer-stock shipments to Nokia in the June 2021 quarter.
- SRAM products accounted for approximately 98% of six-month revenue. The company has one reportable segment.
- Research and development spending increased to $12.01 million for six months, reflecting primarily higher payroll costs and continued product-development investment. Shares outstanding increased to 24.33 million from 24.02 million at March 31, partly due to employee stock-plan issuances.
Outlook, risks and notable items
- Outlook: Management gave no quantified revenue or earnings guidance. It expects existing cash, investments and anticipated operating cash flows to cover working capital and capital expenditures for at least 12 months, and stated that it does not currently expect to need additional cash infusions.
- COVID-19 and supply chain: Management expects pandemic-related impacts on demand and operations to continue into fiscal 2022 and potentially fiscal 2023. Supplier shortages, longer lead times, price increases and COVID-related disruption to Taiwan manufacturing partners may constrain order fulfillment into calendar 2022. The filing cites a 20% wafer-cost increase expected to begin in early calendar 2022.
- Customer and market concentration: Nokia exposure, the cyclical networking and telecommunications market, and reliance on distributors make results vulnerable to fluctuating orders. Avnet Logistics represented 34.4% of six-month revenue. Customer purchase orders are generally cancellable or deferrable, and the company has no long-term purchase commitments from key customers.
- Product development: GSI expects substantial continued investment in APU development and warns that commercialization, adoption and establishing new markets are uncertain. SRAM sales are expected to remain the substantial majority of revenue for the foreseeable future.
- Contingencies and tax: A $220,000 benefit related to Israeli Preferred Company tax status was recorded in the September quarter; quarterly income-tax expense was nevertheless $42,000. Net deferred tax assets of $14.5 million were fully offset by a valuation allowance. The MikaMonu contingent-consideration liability is a Level 3 fair-value estimate and is payable through December 2025.
- Other: Management said risk factors had no material changes from the prior annual report. It reported effective disclosure controls and no material changes in internal control over financial reporting. No shares were repurchased during the quarter; up to $4.3 million remained authorized under the repurchase program.
Important facts for investors to verify
- Whether revenue growth and the improved gross margin persist despite semiconductor supply constraints and the expected wafer-cost increase.
- How much future sales depend on Nokia, distributors and other concentrated customers, and whether order timing or buffer-stock shipments affect comparisons.
- Whether operating cash burn remains consistent with management’s stated liquidity outlook as APU development and operating expenses continue.
- Whether COVID-related manufacturing disruption, supplier pricing and lead times affect product availability or customer demand into 2022.
- Progress toward commercial adoption of APU products and the assumptions underlying the $4.27 million contingent-consideration liability and fully reserved deferred tax assets.