GSI Technology, Inc. — Q1 FY2022 Form 10-Q
Reporting period: Three months ended June 30, 2021; unaudited. Comparisons below are with the three months ended June 30, 2020 unless stated otherwise. Amounts are in U.S. dollars.
Business context
GSI is a fabless semiconductor company focused on Very Fast SRAMs, primarily for networking and telecommunications, and is developing in-place associative computing (APU) products. SRAM accounted for approximately 99% of quarterly revenue. The company reports one business segment.
Key financial metrics
| Metric | Q1 FY2022 | Q1 FY2021 | Change / context |
|---|---|---|---|
| Revenue | $8.791 million | $6.621 million | Up 32.8% |
| Gross profit / margin | $4.782 million / 54.4% | $3.050 million / 46.1% | Margin improved, primarily from product and customer mix |
| Operating expenses | $9.143 million | $8.745 million | Up 4.6% |
| Operating loss | $4.361 million | $5.695 million | Loss narrowed |
| Net loss / diluted loss per share | $4.209 million / $0.17 | $6.076 million / $0.26 | Loss narrowed |
| Operating cash flow | $(4.621) million | $(3.575) million | Cash use increased |
| Cash and cash equivalents | $44.490 million | $50.970 million | Balance-sheet comparison is June 30, 2021 versus June 30, 2020 |
At June 30, 2021, cash, cash equivalents, and short- and long-term investments totaled $55.8 million; cash, cash equivalents, and short-term investments totaled $51.5 million. The company reported no debt. Total assets were $84.5 million, total liabilities $11.6 million, and stockholders’ equity $73.0 million. Current assets were $61.9 million and current liabilities $7.0 million.
Cash increased by $0.256 million during the quarter. Investing activities provided $4.094 million, mainly from investment maturities; financing activities provided $0.783 million from employee stock plans. Capital expenditures were $0.039 million. Stock-based compensation was $0.823 million.
Material changes versus the prior comparable period
- Revenue growth reflected a 23.0% increase in average selling price and a 5.8% increase in units shipped; management attributed the higher average price mainly to a richer mix of higher-density products.
- Sales to Nokia rose to $3.8 million from $1.8 million. Nokia represented approximately 42.7% of revenue, versus 26.9% a year earlier. The quarter’s Nokia shipments included about $1.1 million of buffer stock.
- Research and development expense increased 4.8% to $6.1 million, primarily due to higher payroll-related costs. Selling, general and administrative expense increased 4.1% to $3.0 million.
- Operating cash use worsened year over year, including an $0.885 million increase in accounts receivable and an $0.813 million decrease in accrued expenses and other liabilities.
- Net interest and other income declined to a net expense of $0.020 million from net income of $0.106 million, reflecting lower investment income and higher foreign exchange losses.
Outlook, management commentary, risks and unusual items
- Outlook: No specific numerical revenue or earnings guidance is provided. Management expects overall average selling prices to increase over the next several quarters, citing product mix and, to a lesser extent, price increases related to supply constraints. It expects substantial R&D investment, particularly in APU development, and cautions that operating losses may continue.
- COVID-19 and supply: COVID-related limits on customer engagement and demand continue to affect sales and APU market development. Taiwan supply-chain shortages and rising infections affecting manufacturing partners were expected to constrain sales fulfillment in the near term, possibly through the remainder of calendar 2021.
- Liquidity: Management believes cash, investments, and expected operating cash flows are sufficient for working capital and capital expenditures for at least 12 months, with no current expectation of needing additional cash infusions. This is an assessment, not a guarantee.
- Concentration and cyclicality: Nokia is a major customer, and sales can fluctuate substantially without long-term purchase commitments. The company also relies on distributors and single-source suppliers, including TSMC for wafers and ASE for much of its packaging.
- Contingencies and commitments: The balance sheet includes $4.247 million of non-current contingent consideration related to the MikaMonu acquisition. Contractual obligations totaled $2.627 million, including leases and wafer, software, and test purchase obligations. The filing describes indemnification obligations but says the maximum potential payments cannot be predicted; historical payments have not been material.
- Tax item: The quarter included a $0.172 million income tax benefit, including an approximately $0.220 million benefit associated with retroactive approval of an Israeli Preferred Company tax rate. The year-ago quarter included a $0.479 million discrete tax provision related to an Israeli tax audit settlement.
- Other disclosures: Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. The filing states that risk factors had no material changes from the FY2021 Form 10-K.
Most important facts for investors to verify
- Whether Taiwan manufacturing and supply constraints affect fulfillment, revenue, and margins beyond the near term.
- Whether revenue growth and higher gross margin persist, particularly after accounting for Nokia’s buffer-stock shipments and customer concentration.
- Progress in commercializing APU products and the associated R&D spending, customer adoption, and potential impact on future losses.
- Cash burn relative to the $55.8 million cash-and-investment balance, and whether management’s 12-month liquidity assessment remains valid.
- Exposure to Nokia, major distributors, and single-source manufacturing suppliers, as well as the timing and assumptions underlying the $4.247 million contingent consideration liability.