GSI Technology, Inc. — Form 10-Q Summary
Business context and reporting period
Quarter ended June 30, 2022 (the first quarter of fiscal 2023), compared with the three months ended June 30, 2021. GSI designs and sells integrated circuits, principally Very Fast SRAM products, and is developing associative computing products for AI and high-performance computing. SRAM products represented approximately 97% of quarterly revenue.
Key financial metrics
| Metric | Q1 FY2023 | Q1 FY2022 |
|---|---|---|
| Revenue | $8.909 million | $8.791 million |
| Gross profit / gross margin | $5.365 million / 60.2% | $4.782 million / 54.4% |
| Operating expenses | $9.307 million | $9.143 million |
| Operating loss | $3.942 million | $4.361 million |
| Net loss / diluted loss per share | $3.976 million / $0.16 | $4.209 million / $0.17 |
| Cash used in operating activities | $5.011 million | $4.621 million |
At June 30, 2022, cash and cash equivalents were $33.533 million, short-term investments $7.928 million, and long-term investments $0.875 million, totaling $42.3 million in cash, equivalents and investments. Management separately cited $41.5 million of cash, equivalents and short-term investments. The company reported no debt. Total assets were $71.669 million; total liabilities were $10.404 million; current assets were $52.359 million and current liabilities $7.569 million. Cash and cash equivalents declined $3.438 million during the quarter.
Material changes versus prior-year quarter
- Revenue rose 1.3%, while units shipped increased 7.2%; overall average selling price declined 6.1%, reflecting product mix.
- Gross margin improved 5.8 percentage points, primarily due to product and customer mix. Cost of revenue declined 11.6%.
- Research and development expense increased 8.5% to $6.619 million, mainly from consulting and software maintenance costs. SG&A declined 11.6% to $2.688 million, including a favorable contingent-consideration remeasurement.
- Net loss narrowed by $0.233 million. Operating cash use increased by $0.390 million, including a $1.872 million reduction in accrued expenses and other liabilities, primarily payment of prior-year incentive compensation accruals.
- Nokia-related sales declined to $1.3 million from $3.8 million, and Nokia represented approximately 15% of revenue versus 43%. Distribution revenue increased to $7.305 million from $4.710 million, while contract-manufacturer revenue decreased to $1.535 million from $3.863 million.
Outlook, risks and unusual items
- Management expects existing liquidity and anticipated operating cash flows to meet working-capital and capital-expenditure needs for at least 12 months; it did not provide revenue or earnings guidance.
- Supply constraints continue to limit the ability to fulfill orders; management did not expect significant relief before the end of calendar 2022. Wafer costs had risen 20% for wafers received in early 2022, and increased manufacturing costs were expected to continue through calendar 2023.
- Management expects COVID-19, supply constraints and economic uncertainty—including inflation, higher interest rates and the conflict in Ukraine—to weigh on demand and potentially fiscal 2023 results, financial position and liquidity.
- Customer and channel concentration remain important risks: Nokia was the largest customer, and distributor Avnet Logistics accounted for 40.6% of quarterly revenue. Orders are generally cancellable or deferrable, and GSI depends on single-source suppliers including TSMC for wafers and ASE for much of its packaging.
- GSI continues to invest substantially in associative computing; development, adoption and commercialization are uncertain. It also remains dependent on SRAM sales, in a cyclical and competitive market.
- A material weakness in internal controls over review of forecasts used for contingent consideration and intangible-asset recoverability remained unremediated at June 30, 2022. Management concluded disclosure controls were not effective and said remediation and additional review procedures were underway.
- The contingent-consideration liability was $2.321 million; its $0.450 million remeasurement reduction was recorded through SG&A. The company reported no material warranty accrual and no off-balance-sheet arrangements.
Important facts for investors to verify
- Whether supply availability, wafer and assembly costs, and customer order patterns improve as management expects.
- Whether Nokia and distributor concentration remain manageable, and whether quarterly sales shifts reflect durable demand or timing and inventory effects.
- Progress toward commercialization and customer adoption of associative computing, RadHard and RadTolerant products.
- Remediation and testing of the material weakness, including controls over forecasting, contingent consideration and intangible-asset recoverability.
- Cash burn relative to the $42.3 million of cash, cash equivalents and investments, and the timing of $3.9 million in purchase obligations and contingent consideration payments.