Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology's Second Quarter Fiscal 2024 Results Conference Call. Before we begin today's call, the company has requested that I read the following safe harbor statement. The matters discussed in this conference call may include forward-looking statements regarding future events and the future performance of GSI Technology that involve risks and uncertainties that could cause actual results to differ materially from those anticipated. These risks and uncertainties are described in the company's Form 10-K filed with the Securities and Exchange Commission. Additionally, I have also been asked to advise you that this conference call is being recorded today, October 26, 2023, at the request of GSI Technology. Hosting the call today is Lee-Lean Shu, the company's Chairman, President and Chief Executive Officer. With him are Douglas Schirle, Chief Financial Officer; and Didier Lasserre, Vice President of Sales. I would now like to turn the conference over to Mr. Shu. Please go ahead, sir.

Good afternoon, and thank you for joining us to review our second quarter fiscal 2024 financial results. I am pleased to share that we have achieved two significant milestones since we reported Q1 2024 earnings. First, was the successful launch of the alpha version of our Copperhead compiler suite, a Python-based tool that can harness the capabilities of the Gemini APU. We anticipate releasing the general release of the Copperhead compiler suite in early 2024. A full production version will be available later in 2024. Currently, we have partners learning, using, and developing algorithms with our compiler, including SWAC, a consortium of universities and the companies developing generation technology for space, and an academic research group exploring the future of computing architecture, like MIT and the University of California, Riverside. The second milestone was the completion of the Gemini-II tape-out, which we launched last week. As a result, we are on track to have the chip back in our hands early next calendar year as we expect to begin sampling the device in the second half of 2024. We are targeting Gemini-II partners and customers in low-power data center expansions and enabling data center functions at edge. Examples of edge applications could include advanced driver assistance systems and XAG in delivery drones, autonomous robots, unmanned aerial vehicles, and satellites. Turning to our financial results for the second quarter. Revenue of $5.7 million was at the high end of our guidance. It's also worth noting that our second quarter fiscal year 2023 revenue was boosted by inventory builds with several key customers, which presents a challenging year-over-year comparison. In addition to advancing the table of Gemini-II, a significant area of recent focus has centered around our ongoing engagement with a key hyperscaler partner. I'm delighted to report that these discussions are making notable progress. Through our constructive dialogue with this leading cloud computing provider, we have gained invaluable insights into the precise design specifications required for Gemini-III to align with early requirements. This collaborative effort has enabled us to charge forward while identifying potential partners who can bring the essential financial and engineering resources to the table for the successful development, manufacturing, and launch of Gemini-III. The evolution will leverage the conversion of high-bandwidth memory into APU architecture, thereby harnessing the full potential of in-memory compute advantage. Now I will hand the call over to Didier, who will discuss our business performance further. Please go ahead, Didier.

Thank you, Lee-Lean. Following up on the projects I mentioned last quarter, throughout the second quarter of fiscal 2024, our team continued to pursue opportunities with Gemini-I to advance our customer engagements. Currently, GSI has a fast vector search plug-in available that allows cloud vector search users to seamlessly add APU-accelerated search to their major cloud-provided hosted workloads, with minimal latency from GSI's hosted data centers. This FVS plug-in provides accelerated approximate nearest neighbor search response times, enabling access to a large enterprise service at low power that also meets price points for small- and medium-sized businesses. This will open up larger markets for us. Switching to our SAR opportunities. Due to customer feedback, we have decided to launch our low-powered, highly efficient SAR processing as a SaaS offering, along with, of course, the on-prem version. We are now engaging to bring that service to market. Moreover, we favorably completed benchmarking on a customer's data set. One target we are engaged with is a start-up building satellites that can provide computational capabilities in space. They have identified the Gemini APU as their preferred provider for computing solutions for space. The big differentiator, in addition to low-power performance, is the product's radiation-tolerant feature. On that note, we will be conducting full radiation tolerance testing on Gemini-I next month. By this, I mean the full range of tests required for customers considering using Gemini-I in space. One of the applications for that radiation-tolerant Gemini-I would be ideally suited for SAR and ATR, which is automatic target recognition, and computing in space to name a few. This summer, we announced that GSI was awarded an SBIR contract to perform a feasibility study to adapt Gemini-II to perform computing at the edge, in collaboration with the U.S. Air Force and Space Force. We are currently working on a second SBIR based on the Gemini-II software development, which is very promising and potentially provides a similar financial award as the first win. We continue to file more SBIR applications as they bring two key benefits: first, a source of revenue, and second, they create use cases within the U.S. government for future APU opportunities. Let me switch now to customer and product breakdowns for the second quarter. In the second quarter of fiscal 2024, sales to Nokia were $1.2 million, or 20.3% of net revenues, compared to $1.2 million, or 13.6% of net revenues in the same period a year ago, and $1.9 million, or 33.5% of net revenues in the prior quarter. Military defense sales were 34.8% of second quarter shipments compared to 22.4% of shipments in the comparable year, and 33.8% of shipments in the prior quarter. SigmaQuad sales were 55.8% of second quarter shipments compared to 58.1% in the second quarter of fiscal 2023 and 58.6% in the prior quarter. I would like now to hand the call over to Doug. Go ahead, Doug.

Thank you, Didier. We reported a net loss of $4.1 million or $0.16 per diluted share on net revenues of $5.7 million for the second quarter of fiscal 2024 compared to a net loss of $3.2 million or $0.13 per diluted share on net revenues of $9 million for the second quarter of fiscal 2023 and a net loss of $5.1 million or $0.21 per diluted share on net revenues of $5.6 million for the first quarter of fiscal 2024. Gross margin was 54.7% compared to 62.6% in the prior year period and 54.9% in the preceding first quarter. The changes in gross margin were primarily due to changes in product mix sold in the three periods. Total operating expenses in the second quarter of fiscal 2024 were $7.2 million compared to $8.8 million in the second quarter of fiscal 2023 and $8.2 million in the prior quarter. Research and development expenses were $4.7 million compared to $6.4 million in the prior year period and $5.2 million in the prior quarter. Selling, general and administrative expenses were $2.5 million in the quarter ended September 30, 2023, compared to $2.4 million in the prior year quarter and $3 million in the previous quarter. Second quarter fiscal 2024 operating loss was $4.1 million compared to $3.2 million in the prior year period and $5.1 million in the prior quarter. Second quarter fiscal 2024 net loss included interest and other income of $71,000 and a tax provision of $33,000 compared to interest and other income net of $14,000 and a tax provision of $37,000 for the same period a year ago. In the preceding first quarter, net loss included interest and other income net of $80,000 and a tax provision of $51,000. Total second quarter pretax stock-based compensation expense was $676,000 compared to $661,000 in the comparable quarter a year ago and $820,000 in the prior quarter. At September 30, 2023, the company had $25.3 million in cash, cash equivalents and short-term investments compared to $30.6 million in cash, cash equivalents and short-term investments on March 31, 2023. Working capital was $28.8 million as of September 30, 2023, versus $34.7 million at March 31, 2023, with no debt. Stockholders' equity as of September 30, 2023, was $45.4 million compared to $51.4 million as of the fiscal year ended March 31, 2023. Given the current global economic environment, our current expectations for the upcoming third quarter are net revenues in the range of $5.4 million to $6.2 million, with gross margin of approximately 55% to 57%. Operator, at this point, we would like to open the call to Q&A.

Our first question comes from Brett Reiss with Janney Montgomery Scott.

Until corporate initiatives gain traction, can you just comment on cash burn rates? How long do you think the cash will last without you having to do some sort of financing?

Yes. We've taken a look at that. We typically review it every quarter. And if nothing improves, which we don’t expect, we have cash that should last at least a couple of years at this point.

And if I may just follow up, what do you think your burn will be for this following year?

This year we'll be around $13 million to $14 million. Yes, we have one kind of extraordinary expense coming up this fiscal year that requires about $2.4 million cash outlay. And that's for the mask set for the Gemini-II product that just taped out that Lee-Lean previously mentioned today. That's somewhat of an irregular occurrence that only happens every few years.

Our next question comes from Orin Hirschman with AIGH Investment Partners.

Can you give us a little bit more color on is the data center customer interested in Gemini-II for any purpose or only Gemini-III? Have they played with Gemini-I to understand it better? And what is attracting them to the Gemini architecture? And I have one follow-up.

Okay. So let me start with that. We have ongoing discussions with the hyperscalers, and we've also opened up other discussions with other hyperscalers. Certainly, as Lee-Lean mentioned in his earlier comments, the information we gathered from our first engagement was instrumental in shaping our story and offering for future hyperscale conversations. What they're interested in right now would be the next-generation, specifically, something we'll call Gemini-III for now. This is geared towards GenAI or the LLM models. With that said, as you know, these hyperscalers are very large companies, so Gemini-II is certainly not out of play with them; it just wouldn't be the solution specifically for the GenAI conversations we're conducting.

And in terms of other hyperscalers and data center customers, it sounds like there's some level of progress. How would you characterize it? Have people played with benchmarks yet for any of them? I think would be an important point to note if it's true if you've gotten that far.

Correct. We've demonstrated the technology with Gemini-I because the silicon and software are available. We can conduct true benchmarks and have also run expected benchmarks for Gemini-II. There are several noteworthy aspects of our technology for them. Performance is clearly very important, and our low power consumption has definitely caught their interest, along with features like being a bit processor. This is significant for many of these companies because they are currently limited by their GPUs, which restrict them to specific traffic patterns based on the bit size. Being a bit processor allows us to adapt to varying traffic scenarios on the fly.

In real life, there's been a lot of talk about a very bit type of super processor in the literature. And obviously, no one's really had one commercially where it's programmable in that fashion. Are you programmable today in that fashion, number one. Number two, what are some of the applications where that becomes so enticing?

So you're talking about the bit processing? Yes. So there's a lot of research going on right now. They're finding out that some efficiencies aren't coming in like the expected 16-bit and 32-bit. As I mentioned, 5-bit was one that came up recently. I don't remember the exact application or research on that, but 5-bit was one of them that was essential. The benefit of this bit processing is that, as our customers told us, we're future-proof. If there's an application that requires 5-bit, we're there. If it needs 128-bit, 256-bit, we can accommodate that need without redesigning our part. We have 2 million bit processors on our Gemini-I that can work with a range of bit sizes.

Yes. Just to comment, the GenAI, the large language model is a very big model. It's a very memory-intensive application. So they will lead to significant memory usage and a need for very fast memory. One of the efforts is to reduce the data format; if you have a lesser number of bits to calculate, then you require less memory. We have significant processing capability which allows us to adapt to evolving software innovations, and that's what some of the customers appreciate about this issue.

And just going back to benchmarking, have you done benchmarking for some of the data center and hyperscaler customers?

Most of the benchmarking we've done has been based on POCs where customers have come in and said, 'This is what I'm using. Here is my data set. What do your numbers look like?' We've conducted real-life case POCs for one of our Israeli customers and one of our recent SAR customers. As for broad market benchmarking, we haven't done a lot. We understand that it’s critical, and that’s next on our agenda, but it’s been a resource issue.

In terms of proof of concept using customer data, have any of the hyperscalers given you data sets to show what you can and can't do with it?

No. These have been SAR applications and other applications. The hyperscalers know. The discussions have been revolving around this next-generation device, and we've provided the anticipated benchmarking based on our calculations.

Okay. And last question, about you're using the Process-as-a-Service for people's data, and you had some early tests needing revamping or additional APIs. Where are you at with potential customers offering it as a plug-in or anything like that?

Yes. There are two areas we're focusing the SaaS on: fast vector search and SAR. The SAR was initiated after discussions with one of the folks we're talking to. We have an on-prem solution, which is needed for some customers, and then a satellite application would be a physical sale as well. Currently, most production is being processed via SaaS over AWS using GPU instances. This makes sense to pursue, and so we're opening up the SAR for that. We're still conducting internal benchmarking for some of the fast vector search and database projects.

In terms of trying to get that fast vector search as a plug-in so customers can actually use it through AWS. Any progress there?

There is progress. We’ve had discussions recently with a very large data center company to integrate more easily into their system. Those discussions have been happening over the last couple of weeks, and once those are resolved, we will be able to offer a smoother product. Currently, we're offloading the searches to our data center located in a facility called CoreSite, and we’re working to streamline that offering.

Our next question comes from the line of Luke Benett, an investor.

To zoom out from parsing applications and the prospects for various partnerships, could we assume that when Gemini-I hits the scene and you are able to offer that to be tooled by various users, it will outperform a large swath of the current high-performance computer offerings on the market, including the leaders of NVIDIA, AMD, Samsung, and even Google custom chips. Is that safe to say?

So, just to clarify, we have Gemini-I already. I assume you were referring to Gemini-II. Gemini-II is not a custom chip; it's a standard offering that we are going to have. Yes, we've conducted some calculated benchmarking, which has looked very favorable. Once we have the chip in hand, as Lee-Lean stated, we'll have it early next year. It will take some time to conduct extensive benchmarking but we anticipate favorable results over what is currently in the market. However, I do want to add that we are also looking to offer IP sales due to our unique technology and understand that the hyperscalers conduct a lot of their own custom silicon designing.

Yes, that does address the two implications there, that Gemini-II will be a compelling competitor and that depending on how you're capable of benchmarking or how much tooling and rendering it requires, via IP or that chip directly, it will essentially compete with leading high-performance chips.

Gemini-I's past benchmarks were very positive against what is available today. Gemini-II, as we've discussed, offers 10x performance and 8x L1 memory on chip, making it very compelling for the market.

Our next question comes from George Gasper, an investor.

Could you provide additional insight into the military and defense applications and the interconnect that the company has had in Israel over the years? Considering the current situation in space, are there broader applications for the advancements you are making? Is what’s happening in Israel affecting military-related efforts?

Yes, there are many potential use cases with the military. This is why we've recently had successes with the SBIR applications we've been filing. Some of the interest that we've seen, particularly in the military area includes SAR for sure, along with object detection and automatic target recognition, among others. One of our customers has loaned two of our servers to conduct demonstrations and is interested in putting data centers in space, which is another promising application. Regarding the Israel technology connection, this original technology came from an acquisition we made and was based in Israel, but I’m unsure about your specific concerns related to the current events there.

Considering what’s happening in Israel right now, do you see any applications moving forward to give Israel further recognition in monitoring?

We've had discussions with various entities there on several applications. While I won’t go into specifics, some of the areas we've discussed are likely to accelerate due to current events. That said, we do have pressing issues at hand currently in Israel.

It looks like you’re about to make significant movements with Gemini-II evolving to III. Do you expect this will create real momentum for the company leading to revenue growth by the end of the fiscal year?

Yes, we certainly see momentum and hope to announce more traction as time goes on. However, any revenue coming in by the end of this fiscal year will be from Gemini-I, as Gemini-II won't be sampled until the summer of next year, falling into fiscal '25.

As there are no further questions, I would now hand the conference over to management for their closing remarks.

Thank you all for joining us. We look forward to speaking with you again when we report our third quarter fiscal 2024 results. Thanks.

Thank you. The conference of GSI Technology has now concluded. Thank you for your participation. You may now disconnect your lines.