GSI Technology, Inc. — Fiscal 2024 Third-Quarter 10-Q
Reporting period: Quarter and nine months ended December 31, 2023; filed February 2, 2024. Financial statements are unaudited. The company designs and sells integrated circuits, with Very Fast SRAM products currently providing most revenue and associative-computing products under development.
Financial results
Amounts below are in millions of dollars, except per-share data and percentages.
| Metric | Quarter ended Dec. 31, 2023 | Prior-year quarter | Nine months ended Dec. 31, 2023 | Prior-year nine months |
|---|---|---|---|---|
| Revenue | $5.318 | $6.447 | $16.613 | $24.309 |
| Gross profit / margin | $2.975 / 55.9% | $3.706 / 57.5% | $9.165 / 55.2% | $14.673 / 60.4% |
| Operating expenses | $9.660 | $8.495 | $25.082 | $26.609 |
| Operating loss | $(6.685) | $(4.789) | $(15.917) | $(11.936) |
| Net loss | $(6.601) | $(4.812) | $(15.766) | $(12.016) |
| Loss per diluted share | $(0.26) | $(0.20) | $(0.63) | $(0.49) |
| Cash used in operating activities | Not provided for quarter | Not provided for quarter | $(10.201) | $(12.245) |
- Quarterly revenue fell 17.5%; nine-month revenue fell 31.8%. Management attributed the decline to cautious customer spending and lower purchases following earlier supply-chain buffer stocking.
- Shipments declined 41.2% for the quarter and 48.8% for the nine-month period, while average selling prices rose 40.5% and 34.0%, respectively, mainly due to product mix.
- Quarterly R&D rose 26.2% to $6.976 million, including $2.4 million of APU-2 pre-production mask costs. Nine-month R&D decreased 9.0% to $16.871 million, reflecting lower payroll and consulting costs, partly offset by development spending.
- At December 31, cash and cash equivalents were $21.575 million, versus $27.212 million at March 31, 2023; no short-term investments remained. Total assets were $49.055 million and stockholders’ equity was $39.584 million. The company reported no debt. Current assets of $31.535 million exceeded current liabilities of $8.420 million.
- Nine-month investing cash inflow was $2.771 million, chiefly from investment maturities, and financing cash inflow was $1.793 million, including employee-plan proceeds and a small at-the-market offering. Cash decreased by $5.637 million over the period.
Material changes and business developments
- Revenue contraction and weaker shipments continued year over year; gross margin fell 1.6 percentage points for the quarter and 5.2 points for the nine-month period. Management cited product/customer mix and lower shipment levels affecting fixed-overhead absorption.
- Nokia remained the largest customer: approximately 15% of quarterly revenue and 23% of nine-month revenue, compared with 20% and 16%, respectively, in the comparable 2022 periods. Nokia sales were $0.807 million for the quarter and $3.8 million for the nine months.
- Substantially all revenue is from SRAM products. Distribution accounted for $12.104 million of nine-month revenue; Avnet Logistics represented 48.3% of nine-month revenue, per the risk disclosures.
- The company recorded $435,000 of research and development cost offsets and received the same amount in milestone payments under its Space Development Agency APU-2 prototype agreement. The agreement provides estimated milestone payments totaling $1.25 million, subject to successful completion of milestones.
- In January 2024, after the quarter, GSI announced selection for a separate $1.1 million AFWERX SBIR Direct-to-Phase II contract; the filing reports no activity under that award as of December 31, 2023.
Outlook, risks and unusual items
- Management believes existing cash and expected operating cash flows will cover working-capital and capital-expenditure needs for at least 12 months. It expects continued inflation, higher interest rates, economic weakness and geopolitical uncertainty to weigh on demand and potentially affect results, financial position, impairments and liquidity in fiscal 2024. No specific revenue or earnings guidance is provided.
- Management expects substantial R&D spending to continue as it develops associative-computing products, potentially resulting in operating losses. APU commercialization and revenue forecasts remain uncertain; failure to achieve forecast revenue could lead to a future non-cash intangible-asset impairment. The quarter’s intangible-asset recoverability test did not indicate impairment.
- Cash and operations face exposure to customer demand volatility, customer concentration, distributor dependence, semiconductor cyclicality, declining product selling prices, and reliance on single-source suppliers including TSMC. The filing also highlights risks associated with operations and software development in Israel, manufacturing and testing in Taiwan, and the conflicts in Israel and Ukraine.
- A material weakness in internal control over financial reporting remained unremediated at December 31, 2023. It concerns review controls over forecasts used for contingent consideration and impairment analyses; management concluded disclosure controls and procedures were not effective. Remediation measures have begun but require further operation and testing.
- Purchase obligations totaled $4.2 million, of which $3.3 million were payable within 12 months. Contingent consideration was $495,000, payable through December 31, 2025. A related-party engineering and production charge of approximately $500,000 was recorded for the quarter; $394,000 was owed to Wistron Neweb Corp. at period-end.
Most important facts for investors to verify
- Whether revenue and shipment trends stabilize, especially given customer inventory adjustments and Nokia’s variable orders.
- Cash-burn pace and liquidity against management’s stated 12-month coverage assessment and the remaining purchase obligations.
- APU-2 development progress, milestone receipts, commercial adoption prospects, and any subsequent impairment indicators.
- Progress and testing of controls to remediate the material weakness, particularly forecast-review controls.
- Customer and channel concentration, including Nokia’s revenue share and Avnet Logistics’ reported distribution share.
- Future dilution and offering capacity: the $25 million ATM facility was available, while the filing reports 133,000 shares sold in the period for $542,000 gross and $153,000 net proceeds after offering costs.