GSI Technology(GSIT) - 2023 Q3 - Quarterly Report

PART I — FINANCIAL INFORMATION Financial Statements For the nine months ended December 31, 2022, the company reported a net loss and slight revenue decrease, with declining assets and equity, yet maintained a debt-free balance sheet Condensed Consolidated Balance Sheets As of December 31, 2022, the company experienced a decrease in total assets, liabilities, and stockholders' equity compared to March 31, 2022, primarily driven by reduced cash and investments Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Dec 31, 2022 | Mar 31, 2022 | Change | | :--- | :--- | :--- | :--- | | Assets | | | | | Cash and cash equivalents | $31,870 | $36,971 | ($5,101) | | Total current assets | $46,362 | $54,691 | ($8,329) | | Total assets | $64,148 | $76,422 | ($12,274) | | Liabilities & Equity | | | | | Total current liabilities | $7,144 | $8,861 | ($1,717) | | Total liabilities | $9,348 | $11,971 | ($2,623) | | Total stockholders' equity | $54,800 | $64,451 | ($9,651) | Condensed Consolidated Statements of Operations For the third quarter of fiscal 2023, net revenues decreased, leading to a net loss, while for the nine-month period, net revenues were flat and the net loss narrowed Statement of Operations Summary (in thousands, except per share data) | Metric | Three Months Ended Dec 31, 2022 | Three Months Ended Dec 31, 2021 | Nine Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net revenues | $6,447 | $8,065 | $24,309 | $24,653 | | Gross profit | $3,706 | $4,462 | $14,673 | $13,421 | | Loss from operations | ($4,789) | ($4,532) | ($11,936) | ($13,410) | | Net loss | ($4,812) | ($4,581) | ($12,016) | ($13,357) | | Net loss per share (Basic & Diluted) | ($0.20) | ($0.19) | ($0.49) | ($0.55) | Condensed Consolidated Statements of Cash Flows For the nine months ended December 31, 2022, net cash used in operating activities increased, while investing activities provided significant cash due to investment maturities Cash Flow Summary for Nine Months Ended Dec 31 (in thousands) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | ($12,245) | ($9,942) | | Net cash provided by (used in) investing activities | $6,742 | ($320) | | Net cash provided by financing activities | $402 | $2,353 | | Net decrease in cash and cash equivalents | ($5,101) | ($7,909) | Notes to Condensed Consolidated Financial Statements The notes detail accounting policies, revenue recognition with SRAM products as the primary source and Nokia as a key customer, and disclose a goodwill impairment test and workforce reduction - The majority of revenue is derived from SRAM products, representing 97% of total revenues for the nine months ended December 31, 2022[45] - Nokia is the largest customer, accounting for approximately 16% of net revenues in the nine months ended December 31, 2022, down from 31% in the prior year period[46] - Due to a sustained decline in the company's stock price, a quantitative goodwill impairment assessment was performed as of December 1, 2022, which concluded there was no impairment[57][59] - In November 2022, the company initiated cost reduction measures, including an approximate 15% reduction in its global workforce, incurring $0.3 million in severance charges during the quarter[55] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance, highlighting a quarterly revenue decrease, improved gross margin, focus on new APU products, and a strong liquidity position despite operating losses Overview The company provides semiconductor memory solutions, focusing on SRAMs and new APU products, and has initiated cost reduction measures, including a workforce reduction, in response to macroeconomic challenges - The company's primary business is providing semiconductor memory solutions, including Very Fast SRAMs and new APU products for AI and HPC applications[86] - Business is negatively impacted by the military conflict in Ukraine, rising energy prices, worldwide inflation, rising interest rates, and the ongoing COVID-19 pandemic[89][112] - In November 2022, the company announced cost reduction initiatives expected to save approximately $7.0 million annually, including a 15% workforce reduction, to focus resources on APU technology[91] Results of Operations Net revenues for Q3 FY23 decreased due to economic conditions, while the nine-month gross margin improved due to a favorable product mix, and R&D and SG&A expenses saw varied changes Key Operational Changes (YoY) | Metric | Three Months Ended Dec 31, 2022 | Nine Months Ended Dec 31, 2022 | | :--- | :--- | :--- | | Net Revenues | -20.1% | -1.4% | | Gross Profit | -16.9% | +9.3% | | Gross Margin | 57.5% (vs 55.3%) | 60.4% (vs 54.4%) | | R&D Expenses | -10.1% | +2.1% | | SG&A Expenses | +4.4% | -7.0% | - The increase in gross margin for the nine-month period was primarily due to a favorable product mix, including shipments of higher-margin radiation-hardened SRAMs[116] Liquidity and Capital Resources As of December 31, 2022, the company had $35.2 million in cash and investments with no debt, and expects sufficient liquidity for the next 12 months despite increased cash used in operations - Principal sources of liquidity as of December 31, 2022, were cash, cash equivalents, and short-term investments totaling $35.2 million[123] - Net cash used in operating activities was $12.2 million for the nine months ended December 31, 2022, compared to $9.9 million for the same period in the prior year[124] - The company has a potential contingent consideration liability of $1.9 million related to the MikaMonu acquisition, payable through December 2025 based on revenue targets[131] Quantitative and Qualitative Disclosures About Market Risk The company reports minimal exposure to market risks, with low foreign currency exchange risk and immaterial interest rate risk due to its short-term investment portfolio - The company has relatively little exposure to currency exchange risks as most transactions are denominated in U.S. dollars[136] - Due to the short-term nature of its $35.2 million in investments, management believes there is no material exposure to changes in fair value from interest rate fluctuations[137] Controls and Procedures Management concluded that disclosure controls and procedures were not effective as of December 31, 2022, due to an unremediated material weakness in internal control over financial reporting - Management concluded that disclosure controls and procedures were not effective as of December 31, 2022[139] - The ineffectiveness is due to an unremediated material weakness related to management's controls over the review of forecasts used for contingent consideration, intangible assets, and goodwill impairment testing[140] - A plan to remediate the material weakness is in process, which includes enhancing management's review controls over the forecasting process[141] PART II — OTHER INFORMATION Risk Factors The company outlines significant risks including unpredictable operating results, heavy reliance on Nokia, adverse macroeconomic impacts, challenges in new APU product development, dependence on single-source suppliers, and a material weakness in internal financial controls - Heavy reliance on its largest OEM customer, Nokia, which accounted for 16% of net revenues in the nine months ended December 31, 2022[161] - The business is adversely affected by the military conflict in Ukraine, rising energy prices, worldwide inflation, and the ongoing COVID-19 pandemic[164] - An identified material weakness in internal control over financial reporting could impair the ability to produce timely and accurate financial statements[169] - Future success is substantially dependent on the successful introduction of new in-place associative computing products, which entails significant technological and market risks[176] - The company is dependent on single-source suppliers for key components, most significantly TSMC for wafers[177] Unregistered Sales of Equity Securities and Use of Proceeds During the quarter ended December 31, 2022, the company did not repurchase any shares of its common stock under its authorized stock repurchase program - The company did not repurchase any of its shares under the authorized repurchase program during the quarter ended December 31, 2022[245] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL financial data files - The report includes required CEO and CFO certifications pursuant to the Sarbanes-Oxley Act (Exhibits 31.1, 31.2, 32.1)[246] Signatures The report is duly signed and authorized by the President, CEO, and Chairman, Lee-Lean Shu, and CFO Douglas M. Schirle, on February 14, 2023 - The Form 10-Q was signed on February 14, 2023, by the company's CEO and CFO[249]