Earnings Call Transcript - GSIT Q2 2026

Operator, Operator

Ladies and gentlemen, thank you for standing by. Welcome to GSI Technologies Second Quarter Fiscal 2026 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 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 is being recorded today, October 30, 2025, 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 call over to Mr. Shu. Please go ahead, sir.

Lee-Lean Shu, CEO

Good afternoon, everyone, and thank you for joining us today. Let me start by highlighting two recent and important events for GSI. First, we announced a research paper published by Cornell University in mid-October. The paper verified that our Gemini-I chip performed on par with NVIDIA's A6000 on certain AI tasks while consuming roughly 98% less energy. This paper validates the disruptive potential of our compute-in-memory design, particularly for the near-term commercialization of Gemini-II with 8x the memory and 10x the performance of Gemini-I. Gemini-II is positioned to deliver superior processing at a fraction of the power when compared to existing solutions. This brings me to my second point. The market quickly recognized the significance of our compute-in-memory validation with the Cornell paper. Building on the momentum from the paper's funding, we closed a $50 million equity financing. We are now deploying the capital to accelerate execution across our hardware and software build-out, making this a pivotal period for GSI's growth. Post-funding, we are working on initiatives in parallel. First, we have begun the work to acquire the necessary IP for Plato, which will allow us to start hardware development. This IP provides crucial connection to support broader system interface and prototyping for future customer applications. To accelerate Plato's time to market and capture market opportunity sooner, we are building an additional software team to support Plato. Second, to expedite the build-out of our Gemini-II software solutions and applications, we are investing in all the layers that make the platform more accessible and flexible for developers. These software tools are essential for customers integrating Gemini-II hardware into AI and signal processing workflows, particularly in edge and defense applications, where efficiency and low power provide a competitive advantage. Looking ahead, our initiatives for calendar year 2026 are centered on converting proof-of-concept projects into commercial customers and expanding those relationships into large production programs. Didier will provide an update on where those efforts stand today. To sum up, our post-funding initiatives will be targeted and disciplined. We are rapidly moving forward with the Plato hardware design and the software development, ramping up our Gemini software ecosystem and strengthening ties with key defense and government partners in our POC and SBIR programs. These actions position GSI to turn technical progress into commercial success in high-value edge and defense applications such as drone military vehicles, satellites, and other use cases and to ride the wave of AI compute innovation. Now I hand the call over to Didi, who will provide more details on this topic and discuss our business development and sales activities. Please go ahead, Didi.

Didier Lasserre, VP of Sales

Thank you, Lee-Lean. Let me expand on the topics that Lee-Lean just highlighted. We continue to advance our ongoing projects, including our SBIR and POC engagements with potential customers. Recently, Gemini-II has been approved for prototyping by the offshore defense contractor to whom we shipped a board and software a few months back. This POC focuses on synthetic aperture radar or SAR applications for drones and other edge systems. What's exciting here is that our solution delivers the required performance while maintaining an extremely low power profile around 15 watts, making it ideal for compact energy-constrained environments. For added context on just how competitive the solution is, an incandescent light bulb uses about 4x more wattage than our solution. We are also involved in a joint POC involving two defense organizations and a drone integration partner. This Gemini-II project combines a YOLO model we developed with multimodal large language model processing at the edge, specifically targeting time to first token, a key performance metric for drones. Along with our partner, we successfully demonstrated the end-to-end application to one of the potential end customers. Gemini-II outperformed the competing solution, particularly in how quickly the model produces its first response. We are now optimizing the algorithm and expect to publish initial benchmark results before year-end, with a fully optimized version available in the first half of calendar 2026. This algorithm would be for defense applications such as drones, satellites, and other military vehicles. Gemini-II is a central part of the near-term commercialization roadmap, and we are encouraged by the customer engagement and technical validation that is being received. Turning to our Plato program, we are embarking on the journey towards a major milestone, the tape-out of the Plato chip in early calendar 2027. Over the next year or so, we plan to actively engage several strategic partners for Plato who could provide funding and collaborate on testing and prototyping early versions of the chip. Their involvement would also support the development of software libraries and APIs, ensuring that Plato becomes a versatile, scalable solution across multiple markets, starting with defense. In military and defense applications, the APU's high-performance and low-power capabilities provide unique advantages. Plato will further enhance critical functions such as SAR imaging, object recognition, GPS-denied navigation, and data fusion for drones and military vehicles, delivering real-time tactical capabilities in compact mobile systems. Plato's design builds directly on the foundation of Gemini-II. To accelerate time to market, we are acquiring building block IP that allows us to focus on differentiation rather than reinventing core components. Strategic partners would play a critical role, not just in meeting our ambitious timeline, but in shaping the chip's capabilities, validating its performance in real-world applications, and guiding future enhancements. Their technical collaboration and early adoption would position us to deliver a highly optimized field-tested solution, strengthening our long-term leadership in specialized AI compute architectures well beyond the immediate financial support. And lastly, a comment on our SBIR work. We recently received a $751,000 extension of one of our Space Development Agency contracts, which includes additional funding for radiation-hardened beam testing of Gemini-II. The goal of this testing is to evaluate the robustness of the current Gemini-II commercial chip for possible use in satellite and other aerospace applications. While it's too early to confirm specific designations, we see this as a significant opportunity. Let me now switch to the second quarter's customer and product breakdown. By revenue, I am referring to net revenue in the following comments. In the second quarter of fiscal 2026, sales to KYEC were $802,000 or 12.5% of revenues compared to $650,000 or 14.3% of revenues in the same period a year ago and $267,000 or 4.3% of revenues in the prior quarter. Sales to Nokia were $200,000 or 3.1% of revenues compared to $812,000 or 17.8% in the same period a year ago and $536,000 or 8.5% of revenues in the prior quarter. Sales to Cadence Design Systems were $1.4 million or 21.6% of net revenues compared to nothing in the same period last year and $1.5 million or 23.9% of revenues in the prior quarter. Military defense sales were 28.9% of second quarter shipments compared to 40.2% of shipments in the comparable period a year ago and 19.1% of shipments in the prior quarter. SigmaQuad sales were 50.1% of second quarter shipments in fiscal 2026 compared to 38.6% in the second quarter of fiscal 2025 and 62.5% in the prior quarter. I'd now like to hand the call over to Doug. Please go ahead, Doug.

Douglas Schirle, CFO

Thank you, Didier. The company reported net revenues of $6.4 million for the second quarter of fiscal 2026 compared to $4.6 million for the second quarter of fiscal 2025 and $6.3 million for the first quarter of fiscal 2026. Revenue growth in the quarter was driven by strong market momentum for leading SRAM solutions. Gross margin was 54.8% in the second quarter of fiscal 2026 compared to 38.6% in the year-ago quarter and 58.1% in the preceding first quarter of fiscal 2026. The decrease in gross margin for the second quarter of 2026 was primarily due to a change in the product mix. Total operating expenses in the second quarter of fiscal 2026 were $6.7 million compared to $7.3 million in the second quarter of fiscal 2025 and $5.8 million in the prior quarter. Research and development expenses were $3.8 million compared to $4.8 million in the prior year period and $3.1 million in the prior quarter. The increase in research and development spending compared to the prior quarter is primarily due to changes in the level of stock-based compensation expense and amounts of government funding received under SBIRs in each quarter recorded as an offset to research and development expense. Selling, general, and administrative expenses were $3 million in the quarter ended September 30, 2025, compared to $2.6 million in the prior year quarter and $2.7 million in the previous quarter. The second quarter fiscal 2026 operating loss was $3.2 million compared to an operating loss of $5.6 million in the prior year period and an operating loss of $2.2 million in the prior quarter. Second quarter fiscal 2026 net loss included interest and other income of $43,000 and a tax provision of $41,000 compared to $149,000 in interest and other income and a tax provision of $23,000 for the same period a year ago. In the preceding first quarter, net loss included interest and other income of $13,000 and a tax provision of $54,000. Net loss in the second quarter of fiscal 2026 was $3.2 million or $0.11 per diluted share compared to a net loss of $2.2 million or $0.08 per diluted share for the first quarter of fiscal 2026. For the prior year second fiscal quarter of 2025, net loss was $5.5 million or $0.21 per diluted share. Total second quarter pretax stock-based compensation expense was $856,000 compared to $663,000 in the comparable quarter a year ago and $341,000 in the prior quarter. At September 30, 2025, the company had $25.3 million in cash and cash equivalents compared to $13.4 million at March 31, 2025. Working capital was $26.8 million as of September 30, 2025, versus $16.4 million at March 31, 2025. Stockholders' equity as of September 30, 2025, was $38.6 million compared to $28.2 million as of the fiscal year ended March 31, 2025. Lastly, for the third quarter of fiscal 2026, we expect net revenues in the range of $6.0 million to $6.8 million with gross margin of approximately 54% to 56%. We remain focused on disciplined execution to bring Gemini-II to market, advance our roadmap for Plato, and drive long-term shareholder value.

Operator, Operator

At this point, we'll open the call to Q&A.

Robert Christian, Private Investor

I'd like to congratulate you on the Cornell verification. But I'd also like to know, have you done any work with the auto industry on autonomous vehicles?

Didier Lasserre, VP of Sales

We have not yet. So, as we've talked about in past calls, we certainly have limited resources, and that takes a tremendous effort for that market space. So we're currently starting in the military defense arena, but we certainly believe our technology will adapt well in those areas, and so that's certainly a focus for us in the future, but not yet.

Operator, Operator

Our next question comes from Mark, a private investor.

Unknown Attendee, Private Investor

I had a question on the $50 million placement you recently did. Was that with a strategic investor? What sort of investor? And was there a holding period to that stock?

Douglas Schirle, CFO

No, it was just someone that was interested in the company, it wasn't strategic in any way. And there is no required holding period for the shares.

Unknown Attendee, Private Investor

Got it. Okay. And then just a follow-up to that. Have there been any strategic circling at all now post the Cornell report?

Douglas Schirle, CFO

There are things that we're looking at and parties that we're talking to. But I wouldn't say that there's anything that we haven't already considered working with at this time. As Didier said, we have limited resources, and I think we have some very significant opportunities that he's already mentioned.

Operator, Operator

Our next question comes from David Zalkowitz with ISQ.

David Zalkowitz, Analyst

Yes. Is there any plan to have Cornell or another third party validate the Gemini-II information, a different technology? I know the Cornell report was Gemini-I. So is there a plan to do that similar type of analysis for Gemini-II?

Didier Lasserre, VP of Sales

Yes, you're absolutely right. Cornell received the Gemini-I board several years ago and has published a few other papers on it. This was a continuation of that initial project. We are in discussions with them about providing a Gemini-II board, as well as working with other researchers.

David Zalkowitz, Analyst

Okay. I see you're working with the military, but I noticed that there doesn't seem to be anyone on the Board or in senior management with significant military defense experience. Are there any plans to strengthen that aspect of the management team or the Board of Directors to better target those applications?

Douglas Schirle, CFO

Yes. No, that hasn't come up as a discussion or topic on the Board. At this point, there are no plans to revise the Board. It doesn't mean that we won't in the future, if it makes sense, though.

David Zalkowitz, Analyst

Okay. And then I saw you're developing your own large language model, which you're going to release some information on at the end of the year. Just curious why you wouldn't just use the plethora of large language models that are already out in the market and why spend resources developing your own?

Lee-Lean Shu, CEO

No, we are not developing our own large language model. We are working on the open-source large language model like Gemma III.

David Zalkowitz, Analyst

I'm just reading a press release, the press release says currently developing a multi-modal LLM that targets edge applications.

Didier Lasserre, VP of Sales

Correct. Yes. For 12b, Gemma-312B is the model, and we are developing our algorithms to work with that model.

David Zalkowitz, Analyst

Okay. And why would you do that as opposed to utilizing other LLMs that are already developed?

Didier Lasserre, VP of Sales

In this case, it was the definition from the POC that we're working on. So as we talked about, there are 2 government entities that have approached us and a partner to do a POC, and that is the model that they requested.

Lee-Lean Shu, CEO

Yes. Also, there are certain aspects of the model, which support multi-modal. So they can support images very well, in addition to the text. That's why they picked this one.

Operator, Operator

Our next question comes from Christian Rug from CER Holdings.

Unknown Analyst, Analyst

I was wondering, how are you differentiating your APU versus GPU competitors in terms of power, latency, and cost efficiency?

Didier Lasserre, VP of Sales

That's a pretty broad question. And so if you look at the Cornell paper, that certainly hits on the power. The comparison was to an NVIDIA GPU, and the use case they use, the performances were on par, but we were 98% less power. So that certainly shows that. With the SAR algorithm that we've been talking about, certainly, our image creation time is faster at a lower power footprint as well. So what we've done is we've done benchmarking on certain use cases based on input from customers on what they'd like to see. So there are times where we beat them strictly on power. There are times we beat them strictly on performance. Well, I shouldn't say that; we've never lost to them on power. But there certainly are times that we have the advantage on both performance and lower power.

Unknown Analyst, Analyst

Okay. And then my second question is, given the performance claims and potential of Gemini-II APU, have you had any engagement or partnership discussions with larger semiconductor or AI-focused companies?

Didier Lasserre, VP of Sales

So right now, we're focused on the customers at this point. We haven't had any discussions at least recently with other semiconductor companies.

Unknown Analyst, Analyst

Okay. And then my last question is, how do the power factors play into building AI data centers at a large scale?

Didier Lasserre, VP of Sales

We are currently concentrating on the edge. Everything we've discussed so far relates to the edge. While the data centers have significant power challenges, our main focus at this moment is on Gemini-II and the upcoming chip Plato, which are designed for edge applications. For instance, with Gemini-II, which we developed for an offshore defense contractor, we limited our chip to one of the four cores to reduce power consumption to 15 watts. In the case of Plato, its power usage can range from as low as 4 watts to a maximum of 12 to 15 watts. Our primary emphasis is on the edge rather than the data center.

Operator, Operator

Our next question comes from Michael Roberts from Roberts Capital. It seems Michael has gone silent. We will move on to the next question. Michael Cooper, private investor. You may proceed with your question.

Michael Cooper, Private Investor

Can you talk about the total addressable market that you're looking at over the next 5 years? And then how you expect that to ramp? I'm guessing you have a number of different scenarios, maybe a range of scenarios. You could give us a sense for how large this market is for these markets? I'm sure you're looking at various markets. And then what kind of price points your boards or chips go into products?

Didier Lasserre, VP of Sales

Sure, that's a great question. I don't have the numbers handy, but there was a recent report from a research analyst at Needham & Company that focused on the drone market. I believe the market size was in the tens of billions, possibly even larger. It's definitely a significant market. As we've mentioned, we believe our chips, combined with our algorithm developments for multimodal inputs like images, text, or voice, give us a strong advantage in this space, particularly with our quick time to first token. For the pricing, it will vary by market. Generally, it might range from a few thousand to $10,000 per board that includes the chip. The chip itself could be priced around $1,000 or more, again depending on the specific market and volume.

Michael Cooper, Private Investor

And you're working in gross margins in the 80-ish percent range?

Didier Lasserre, VP of Sales

Yes, it will be above where we are corporately today. And again, it really depends on the market and how it's sold. It could be 60% to 80%. It really depends on how it's sold, whether it's in a board, in a server, whether it comes with software or not. I mean, there's a lot of different aspects that would move that margin needle.

Operator, Operator

Our next question comes from Michael Roberts with Roberts Capital, who is rejoining us.

Michael Roberts, Private Investor

On capital deployment on the $50 million raise, can you give an idea of how that plans to be allocated, whether it's percentage or dollar amount, amongst the Gemini-II completion, software development, and the new Plato chip that you referenced?

Lee-Lean Shu, CEO

Yes. On the Plato, because there's some fixed costs that we have to spend like IP costs and the mass tape-out costs. So those are fixed $15 million, $60 million, $70 million kind of range, okay? And the rest of them, I think they're probably pretty even between the Gemini-II and the Plato, that's mostly engineering costs, the internal cost, and it will be distributed even inside the company.

Michael Roberts, Private Investor

Evenly across. Okay. And in terms of then based on your cash runway now, what revenue or gross margin level do you expect to reach operating breakeven then?

Douglas Schirle, CFO

If you can assume I don't know, 65% to 70% gross margin once we get into this. It's something that I need to take a look at. We're still putting our plans together in terms of hiring levels and so on. SoC teams or whoever we need for the chip development, additional software teams that we need for the software development. I don't have all those numbers yet to do a calculation.

Michael Roberts, Private Investor

Understood. But are there concrete milestones and dates then for the Gemini-II in terms of expectation of pilot shipments or expected initial production orders?

Didier Lasserre, VP of Sales

Yes. So we will be doing some pilot shipments. We've done a couple already or we plan on doing more in the first half of 2026 calendar. This POC that hopefully we'll be able to discuss a lot more in the upcoming months, depending on the schedules on that could give more substantial revenues in the back half of calendar 2026.

Michael Roberts, Private Investor

Noted. And from the current evaluation customers now, have any purchase orders or letters of intent been provided yet?

Didier Lasserre, VP of Sales

I'm sorry, could you repeat the question?

Michael Roberts, Private Investor

Yes. Have any of the evaluation customers provided any purchase orders or letters of intent yet against that production?

Didier Lasserre, VP of Sales

They are still in the evaluation phase at this time. As we mentioned, the board we sent along with the software to this offshore defense contractor has completed a review and classified us as having good acceptance in their system, indicating that it has been successfully reviewed and accepted. We are now exploring potential use cases. They have several divisions, two of which we believe will be a good match. One is the SAR division, and the other is their AI division. We are identifying practical applications that could lead to design wins and revenue. We are actively working on this with the customer today.

Michael Roberts, Private Investor

All right. Very helpful. And one last question, then I'll let others proceed. Can you elaborate on that software stack maturity then, the compiler SDK model porting tools and when developers outside of GSI will have access? Going towards the ecosystem adoption of what we have?

Lee-Lean Shu, CEO

No, for the Gemini-II, we are currently developing the library and algorithm. After that, we will move on to the tool and compiler work. We are collaborating with our partner and customer on this.

Robert Christian, Private Investor

Yes. Can you help me understand why the company is not going after data centers in view of the environment impact with energy consumption and cooling? It seems like we're leaving a lot of money on the table, even if it was just licensed so others could use the technology.

Didier Lasserre, VP of Sales

I'm not sure how long you've been following the company, but we previously discussed a potential product roadmap called Gemini-III, which was intended for the data center. This project would have required a different type of partner and significantly more funding, including a more advanced process node, making it much more costly. As we pursued that path, we received overwhelming positive feedback and interest in edge computing, along with SBIR and other research funding aimed at edge technology. Therefore, we decided we couldn't focus on both initiatives simultaneously and made the strategic choice to concentrate on the edge for now. However, with additional funding, we could strengthen our team and eventually pursue the data center as well.

Robert Christian, Private Investor

Okay. But there's not a possibility, say, of NVIDIA or a Micron to come in and develop the chip, and we get a percentage of it?

Didier Lasserre, VP of Sales

Yes, that's certainly possible. While I can't confirm that those discussions are currently taking place, we have had some conversations in the past where that was the model we were considering. So the answer is yes, we could pursue that opportunity. However, there isn't anything in progress at the moment.

Operator, Operator

Our next question comes from Marco Petroni with MG Capital.

Unknown Analyst, Analyst

Yes. You recently raised $47 million net, and you had $13 million last quarter, but the balance sheet shows only $25 million now. So I was wondering where that money went, first. Additionally, moving forward, what kind of capital allocations do you need to build out the software team for the various projects we've been discussing?

Douglas Schirle, CFO

Well, the first answer is that, that transaction closed after the balance sheet date. It was an October transaction and the $27 million that you see is as of September 30. In terms of capital allocation, I think we answered a previous question where we're looking at some IP and other stuff that we need to purchase for Plato, and then we expect to split funding between software development and the Plato development.

Operator, Operator

Our next question comes from Mohammed Alsousi from Scale.

Unknown Analyst, Analyst

I just want to know if you have attracted any interest from any potential new customers after the Cornell study on APU performance.

Didier Lasserre, VP of Sales

I'm sorry, just to be clear, you're asking if we've gotten any more customer traction because of the Cornell paper? Is that the question?

Unknown Analyst, Analyst

No, I want to know if you attract more interest or potential new customers after the new Cornell study on APU performance.

Didier Lasserre, VP of Sales

Okay. I think that's what I just said. Okay. So the answer is the customers we've been talking to, we've been talking about this low-power advantage for some time, and we've done benchmarks on several applications with some of our customers. They're aware of that. In that respect, it's not a surprise to our customers we've been talking to that we have this low-power advantage. This just illustrated it for the rest of the public as a third-party validation of what we've been saying.

Operator, Operator

This now concludes our question-and-answer session. I would like to turn the floor back over to Mr. Lee-Lean Shu for closing comments.

Lee-Lean Shu, CEO

We look forward to seeing you at this event and your participation in the third quarter fiscal 2026 earnings call. Thank you.

Operator, Operator

Ladies and gentlemen, this concludes our conference for today. Thank you for your participation. You may disconnect your lines and have a wonderful day.