GSI Technology, Inc. — FY2020 Form 10-K Summary
Reporting period: Fiscal year ended March 31, 2020. This is an annual report, not a report for calendar 2019 Q4; quarterly data for the fiscal fourth quarter (ended March 31, 2020) are included below. The company designs and sells high-performance SRAM and is developing in-place associative computing products, including its APU.
Financial performance and position
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $43.3 million | $51.5 million |
| Gross profit / margin | $25.3 million / 58.5% | $31.6 million / 61.4% |
| Operating loss | $10.8 million | $0.2 million |
| Net income (loss) | $(10.3) million; $(0.45) per diluted share | $0.2 million; $0.01 per diluted share |
| Cash from (used in) operations | $(4.7) million | $3.0 million |
- Revenue fell 15.8% year over year. Units shipped declined 14.7%, and average selling price declined 0.8%. Nokia sales decreased $6.8 million to $16.3 million.
- R&D expense rose 18.1% to $25.2 million, principally reflecting APU development and purchased intellectual property. Total operating expenses increased to $36.1 million.
- At March 31, 2020, cash, cash equivalents and short-term investments were $66.6 million; including long-term investments, total liquidity was $70.7 million. Working capital was $70.9 million, total assets $102.6 million, and stockholders’ equity $89.6 million.
- The company reported no debt. Investing activities provided $10.0 million, primarily from investment maturities; financing activities provided $3.7 million, primarily from employee stock plans.
- Fiscal Q4 revenue was $8.5 million, gross profit $4.5 million and net loss $3.8 million. Revenue declined each quarter from $13.0 million in fiscal Q1 to $8.5 million in fiscal Q4.
Material changes versus the prior year
- After FY2019’s near break-even operating result and $0.2 million net income, FY2020 recorded an operating loss of $10.8 million and net loss of $10.3 million.
- Gross margin contracted by 2.9 percentage points to 58.5%, as product and customer mix changed. Cost of revenue included a $0.3 million excess and obsolete inventory provision, down from $1.2 million in FY2019.
- Operating cash flow swung from positive $3.0 million to negative $4.7 million, primarily reflecting the net loss, partly offset by noncash charges and reductions in receivables and inventory.
- Cash, cash equivalents and short-term investments increased from $61.8 million to $66.6 million. The balance sheet also recognized operating lease assets and liabilities after adopting the new lease standard.
Outlook, commentary and risks
- Management expected APU productization work to be completed in calendar 2020; an optimized product was expected to be production-ready in calendar 2021. These are expectations, not guarantees, and the filing gives no quantified revenue or earnings guidance.
- Management expected Very Fast SRAM sales to remain the substantial majority of revenue. Networking and telecommunications demand has declined over time, and the company expects that trend to continue; it also anticipates average selling prices of individual products will generally decline.
- COVID-19 created material uncertainty for demand, operations and liquidity in FY2021. At filing time, the company reported longer wafer and assembly lead times but otherwise limited manufacturing disruption in Taiwan; the duration and financial impact could not be estimated.
- Customer concentration is significant: Nokia represented approximately 38% of FY2020 revenue, versus 45% in FY2019. Avnet Logistics accounted for 34.3% of revenue as a direct distributor. The company generally lacks long-term purchase commitments, and orders may be rescheduled or canceled.
- TSMC supplies all SRAM wafers; the company also relies on independent assembly and test providers and has no long-term supply agreements with them. Disruptions, capacity constraints, geopolitical risk or natural disasters could affect production.
- Potential MikaMonu earnouts include $2.8 million and $4.0 million tied to revenue milestones by January 2021 and January 2022, respectively, plus possible revenue-based payments through 2025. The recorded contingent consideration liability was $3.9 million; maximum potential payments are substantially higher.
- A $9.4 million valuation allowance covered substantially all deferred tax assets. Goodwill of $8.0 million passed the FY2020 impairment test, but management noted a sustained stock-price decline could trigger another assessment.
- The company said it expected current liquidity and operating cash flows to cover working capital and capital expenditures for at least 12 months, while noting COVID-19 or strategic initiatives could change funding needs. It had $4.3 million remaining under its share repurchase authorization and paid no cash dividends.
Important facts for investors to verify
- Whether revenue and customer orders stabilize after the sequential fiscal-year decline, particularly Nokia purchases and networking/telecom demand.
- Whether APU productization, customer evaluations and commercialization milestones meet the stated calendar 2020–2021 expectations, and what evidence supports future demand.
- Whether cash burn persists, and how liquidity changes with operating performance, investment maturities, capital spending and potential earnout payments.
- Whether COVID-19, TSMC capacity, extended supplier lead times or Taiwan-related risks affect production and customer deliveries.
- Whether future tax-asset realizability, contingent-consideration estimates or goodwill assumptions change materially.