GSI Technology, Inc. — Form 10-Q Summary
Reporting period: Fiscal third quarter and nine months ended December 31, 2020; comparisons are with the corresponding 2019 periods. GSI designs and sells integrated circuits, principally Very Fast SRAM products, and is developing in-place associative computing products.
Financial performance
| Metric | Three months ended Dec. 31, 2020 | Three months ended Dec. 31, 2019 | Nine months ended Dec. 31, 2020 | Nine months ended Dec. 31, 2019 |
|---|---|---|---|---|
| Revenue | $6.8 million | $10.0 million | $20.0 million | $34.8 million |
| Gross profit / margin | $3.2 million / 47.3% | $6.0 million / 60.2% | $9.4 million / 46.7% | $20.9 million / 59.9% |
| Operating loss | $5.2 million | $4.7 million | $16.0 million | $6.9 million |
| Net loss | $5.2 million | $4.6 million | $16.5 million | $6.5 million |
| Diluted loss per share | $0.22 | $0.20 | $0.70 | $0.28 |
| Cash used in operating activities | Not separately presented | Not separately presented | $11.4 million | $1.2 million |
At December 31, 2020, cash and cash equivalents were $43.1 million, short-term investments $9.2 million and long-term investments $10.1 million, totaling $62.4 million in cash and investments. The company reported no debt. Total assets were $91.6 million, total liabilities $13.1 million and stockholders’ equity $78.5 million. Cash and cash equivalents plus short-term investments totaled $52.3 million, compared with $66.6 million at March 31, 2020.
Material changes and drivers
- Quarterly revenue fell 32.7% year over year; nine-month revenue fell 42.4%. Management attributed the decline principally to COVID-19-related reductions in customer demand, restricted sales and distributor activity, and postponed investment in some customer sectors.
- Gross margin declined by 12.9 percentage points in the quarter and 13.2 points for the nine-month period. Management cited changes in product and customer mix and inventory-reserve charges. Average selling prices were down 1.0% for the quarter and 7.3% year to date, mainly because fewer higher-density products shipped.
- Nine-month operating loss widened to $16.0 million from $6.9 million. R&D expense declined year over year, partly because the prior-year period included $2.7 million of purchased intellectual property expense; management nevertheless expects substantial ongoing R&D investment, particularly in associative computing.
- Nokia represented approximately 40% of nine-month revenue in both 2020 and 2019. Nokia sales were $8.1 million year to date, down from $13.9 million. Distribution revenue also fell substantially year over year.
- Cash and cash equivalents decreased $8.4 million from the start of the fiscal year. Operating cash use increased, primarily reflecting the net loss and payment of prior-year accrued purchased-IP costs; employee stock-plan proceeds provided $3.3 million of financing cash.
Outlook, risks and unusual items
- No specific revenue or earnings guidance was provided. Management expects COVID-19 and related customer, sales-channel and economic disruption could adversely affect results, financial position and liquidity through fiscal 2021 and into fiscal 2022, but said the duration and magnitude cannot be estimated.
- Management believes existing cash, investments and expected operating cash flows will cover working capital and capital expenditures for at least the next 12 months. It reported no current expectation of needing additional cash infusions.
- Supply-chain exposure includes longer wafer and assembly lead times. Production depends on single-source suppliers, notably TSMC for wafers; the filing also identifies risks from customer-order volatility, semiconductor cyclicality, product-price erosion and competition.
- Revenue and operating results are exposed to customer concentration: Nokia is a major customer, and Avnet Logistics accounted for 31.0% of nine-month revenue. The company says sales to Nokia can fluctuate significantly and does not have long-term purchase commitments with key customers.
- The company recorded a $479,000 discrete tax provision following settlement of an Israeli tax audit; the related $713,000 liability was paid in the quarter ended September 30, 2020. A full valuation allowance applied to $12.4 million of net deferred tax assets.
- A $4.0 million non-current contingent consideration liability relates to the MikaMonu acquisition and is payable subject to revenue targets through December 31, 2025. The company also reported $326,000 of long-term unrecognized tax benefits.
- Related-party item: the company incurred about $326,000 of engineering-service expense from Wistron Neweb Corp. in the nine months; $243,000 was payable at December 31, 2020. A company director is WNC’s chairman and chief strategy officer.
- Management reported effective disclosure controls and procedures 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 prior Form 10-K.
Important facts for investors to verify
- Whether revenue and gross-margin trends stabilize, and how much recovery depends on COVID-19 restrictions and customer buying patterns.
- Future Nokia and Avnet sales, customer concentration, order cancellations or deferrals, and distributor inventory levels.
- Wafer and assembly availability, lead times and costs, particularly at TSMC and other concentrated suppliers.
- Cash burn and investment balances relative to management’s stated liquidity runway, especially if losses persist into fiscal 2022.
- Development progress, commercialization prospects and ongoing spending for associative computing products.
- Potential changes in contingent consideration, tax exposures and any material developments in commitments or contingencies.