GSI Technology, Inc. — FY2019 Form 10-K
Reporting period: Fiscal year ended March 31, 2019. The filing also reports the quarter ended March 31, 2019; this is not a calendar-year 2018 report.
Business context
GSI is a fabless semiconductor company whose revenue is primarily from high-performance SRAM for networking and telecommunications customers. It is also developing an in-place associative computing product, the APU, targeting similarity search and other data-intensive applications.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $51.5 million | $42.6 million |
| Gross profit / margin | $31.6 million / 61.4% | $22.4 million / 52.6% |
| Research and development | $21.4 million | $17.0 million |
| Operating income (loss) | $(0.2) million | $(4.5) million |
| Net income (loss) | $0.2 million | $(4.5) million |
| Cash from operations | $3.0 million | $1.1 million |
| Cash, cash equivalents and short-term investments | $61.8 million | $58.4 million |
| Working capital | $68.6 million | $63.9 million |
- Revenue increased 20.7%; units shipped declined 3.1%, while average selling price rose 24.0%, primarily from a shift toward higher-density products. Nokia-related sales increased to $23.1 million from $15.3 million.
- Gross margin improved with product and customer mix. R&D increased 25.6%, principally due to associative-processing development.
- Cash and investments totaled $70.8 million including $9.0 million of long-term investments. Total liabilities were $13.1 million; the company reported no debt.
- Cash used in investing activities was $3.5 million, including $2.1 million of property and equipment purchases. Financing cash flow was $2.7 million, including employee-plan proceeds and acquisition-related payments.
- At March 31, 2019, assets were $106.2 million and stockholders’ equity was $93.2 million.
March-quarter results: Revenue was $12.7 million, gross profit $7.8 million and net loss $0.1 million, versus revenue of $11.2 million, gross profit of $6.3 million and net income of $0.3 million in the prior-year quarter.
Outlook, risks and unusual items
- Management anticipated initial APU product introduction and customer evaluation in the second half of calendar 2019. It expected substantial continued R&D investment, with operating losses possible in some periods; the filing provides no quantified revenue or earnings guidance.
- Management said available liquidity and expected operating cash flow should meet working-capital and capital-expenditure needs for at least 12 months. This outlook depends on sales, working capital and product-development spending.
- Customer concentration is significant: Nokia represented approximately 45% of FY2019 revenue. Sales are largely order-based, and customers generally lack long-term purchase obligations. Avnet Logistics accounted for 31.3% of revenue as a direct distributor.
- GSI relies on TSMC for SRAM and APU wafers and Powerchip for LLDRAM wafers, without long-term supply agreements. Supply interruption, capacity constraints, or Taiwan-related disruption could affect deliveries and results.
- FY2019 included $1.2 million of excess and obsolete inventory provision and a $6.7 million valuation allowance against net deferred tax assets. The company reported $4.2 million of accrued MikaMonu contingent consideration; further earnouts depend on development and revenue milestones and could reach substantially higher amounts under the acquisition terms.
- GSI adopted ASC 606 in FY2019 without a significant effect on retained earnings. The filing estimated that lease accounting adoption in FY2020 would add approximately $1.0–$1.2 million of right-of-use assets and lease liabilities.
- Goodwill of $8.0 million passed the FY2019 impairment test. The filing identifies a sustained stock-price decline as a possible impairment trigger. No legal proceedings were reported in Item 3.
Important facts for investors to verify
- Whether the APU launches on the stated timetable and attracts paying customers, and how development spending evolves.
- Whether FY2019’s revenue and margin improvement is sustainable given lower unit shipments and reliance on Nokia and distributors.
- Foundry capacity and supply continuity, particularly at TSMC and Powerchip, and any changes to supplier terms.
- Cash conversion and working-capital trends, including the FY2019 increases in receivables and inventory.
- The timing and potential amount of MikaMonu retention and earnout payments, and assumptions underlying their fair value.
- The implications of the full deferred-tax valuation allowance and the company’s reported foreign cash holdings.