Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology's Third Quarter Fiscal 2024 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. At that time, we will provide instructions for those interested in entering the queue for the Q&A. 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've been asked to advise you that this conference call is being recorded today, January 25, 2024, 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. I am pleased to share several key updates from an eventful third quarter. Starting with the product development, we achieved two major milestones that will keep us on track to advance the Gemini APU family. First, in November, we successfully completed the radiation-hardened testing on the Gemini-I APU for compute-in-space applications. The test results confirm that Gemini-I has met characteristics to be a radiation-tolerant processor. We are actively engaged with several satellite companies that need radiation-tolerant APUs, and we are encouraged by the strong interest. Moving to our next-generation APU, we completed the table of Gemini-II in the third quarter. In late February, we will evaluate the initial spin and expect to begin sampling Gemini-II chip in the second half of calendar 2024. Gemini-II has 8 times of internal memory and 10 times better performance than Gemini-I and notably lower cost. This dramatically improve in cost performance allow us to target a much broader range of applications. The 96-megabyte of internal memory in Gemini-II can fit many AI models entirely on the chip, enabling in-place data processing without accessing external memory, external [DRAM] (ph). This should give Gemini-II tremendous advantage on compact edge applications like drone and ADAS. We anticipate starting initial alpha deployment with select customers in the second half of calendar 2024. Lastly, in the third quarter, we shipped radiation-hardened SRAMs to two customers for two new programs and we received a second SBIR Direct-to-Phase II contract in the amount of $1.1 million. Looking ahead, we are in the early stage of developing the architecture for our next-generation Gemini-III chip. We had a discussion with several hyperscalers about APU design options to best address the emerging markets' need in the data center. In addition to helping hyperscalers lower data center…

Thank you, Lee-Lean. I want to provide some additional context on why we are so confident in the market potential for our APU architecture, especially for inference workloads. First, the unmatched flexibility of our variable bit processing is key. With 2 million undefined bit processors that can be toggled from 1 bit to 2 million bits cycle by cycle, our APU can adapt to real time -- I'm sorry, in real time to maximize efficiency. This dynamic bit-wise configurability can process long strips 1 bit at a time and is ideal for inference since research shows that different bit precisions are more efficient for different models. Second, our APU architecture breaks the Von Neumann model by removing the data fetch function. This innovative design delivers higher performance with lower power consumption. As Lee-Lean mentioned, these capabilities directly address the critical needs of data centers and emerging applications by lowering data center power consumption and reducing inference costs for GenAI end users. Importantly, I want to emphasize that our APU represents true in-memory -- I'm sorry, true compute-in-memory architecture. Unlike competing chips that claim compute-in-memory, they are actually near memory compute, and our APU has logic physically integrated in the memory. This fundamental difference in architecture will ultimately enable our APU to achieve the transformative speed and efficiency gains we anticipate as we scale. Our true compute-in-memory architecture gives us a sustained competitive advantage. To accelerate ecosystem development, we are focusing on getting APU in the hands of key partners in the military, hyperscalers and academia. The real-world deployment and libraries will showcase the benefits, expand use cases, and support our go-to-market capabilities. One example of the strategy is helping us promote and monetize Gemini-I is a recently published research paper from Cornell University. We are pleased to announce that the…

Thank you, Didier. We reported a net loss of $6.6 million, or $0.26 per diluted share, on net revenues of $5.3 million for the third quarter of fiscal 2024, compared to net losses of $4.8 million, or $0.20 per diluted share, on net revenues of $6.4 million for the third quarter of fiscal 2023 and a net loss of $4.1 million, or $0.16 per diluted share, on net revenues of $5.7 million in the second quarter of fiscal 2024. Gross margin was 55.9% compared to 57.5% in the prior-year period and 54.7% in the preceding second quarter. The changes in gross margin were primarily due to changes in product mix and volume sold in the three periods. Total operating expenses in the third quarter of fiscal 2024 were $9.7 million compared to $8.5 million in the third quarter of fiscal 2023 and $7.2 million in the prior quarter. Research and development expenses were $7 million compared to $5.5 million in the prior-year period and $4.7 million in the prior quarter. Selling, general and administrative expenses were $2.7 million in the quarter ended December 31, 2023 compared to $3 million in the prior-year quarter and $2.5 million in the previous quarter. Third quarter fiscal 2024 operating loss was $6.7 million compared to $4.8 million in the prior-year period and an operating loss of $4.1 million in the prior quarter. Third quarter fiscal 2024 net loss included net interest and other income of $155,000 and a tax provision of $71,000, compared to net interest and other income of $61,000 and a tax provision of $84,000 for the same period a year ago. In the preceding second quarter, net loss included net interest and other income of $71,000 and a tax provision of $33,000. Total third quarter pre-tax stock-based compensation expense was $649,000 compared to $655,000 in the comparable quarter a year ago and $676,000 in the prior quarter. At December 31, 2023, we had $21.6 million in cash and cash equivalents, compared to $30.6 million in cash, cash equivalents and short-term investments at March 31, 2023. Working capital was $23.1 million as of December 31, 2023 versus $34.7 million at March 31, 2023, with no debt. Stockholders' equity as of December 31 was $39.6 million compared to $51.4 million as of the fiscal year ended March 31, 2023. For the fourth quarter of fiscal 2024, we anticipate net revenues in a range of $4.8 million to $5.4 million, with gross margin of approximately 55% to 57%. Operator, at this point, we'd like to open the call to Q&A.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Brett Reiss with Janney Montgomery Scott. Please proceed with your question.

Hi, gentlemen. You can talk to me like I'm six-years-old. Could you just explain what is an infrequent $2.4 million charge for a pre-production mask? I'm not an engineer. Just if you can give me some more clarity on that?

Yeah. So, every time we have a product, we have to have a mask set prepared to run in the fab to manufacture the wafers. Now, typically, when we incur charges for mask set for production product, we will capitalize that into prepaids and amortize it over a 12-month period. However, the one exception to that is when we have mask set prepared on a new process technology that we've never run before, we'll charge that expense to R&D expense. So, in this quarter -- well last quarter, we taped out Gemini-II on a process technology we've never used. It's a 16-nanometer process at TSMC. Now, since we've never used that process before, we charge that $2.4 million to R&D expense.

All right. So, this is one shot. It's not going to be reoccurring?

No. It will recur in the future when we have another product that tapes out on a process technology that we've never used before. So, it's infrequent. It doesn't happen every year. It's at most every two or three years.

Okay. The cash, which was my margin of safety in my investment here, keeps dwindling down. I'm a little concerned about that. Some of these initiatives with bringing in other joint venture partners, what's the timetable on that? And how long do we have before we burn through the remaining cash?

Well, we're currently looking at various opportunities, and Didier mentioned talking to hyperscalers and others. To come out with our next product, it's going to require significant investments, so we're looking for partners or other sources of funding. In addition to that, we have a building that's -- we own that's worth quite a bit of money, and we'll be looking into potentially selling that building in the near future.

Right. What is the building appraised at? And in a base case scenario, what do you think you could sell it for?

We think we can probably get somewhere in the range of $10 million to $13 million.

Right.

And there's no debt tied to that. It's fully paid for.

Right. Could you just give me a broad outline of what the structure of a joint venture partner's capital investment in GSIT would take? Would they pay an upfront milestone payment with other payments to follow? Would it be an equity investment? What do you think the structure of that would look like?

So, it could be either of those. What I mean is when Lee-Lean was talking about a partner for funding the next program, that's specifically for Gemini-III. So, Gemini-II was fully funded internally. But for Gemini-III, we are looking for a partner for that, most likely a customer funding partner. But aside from that, that would be more of an NRE type of funding, so there would be milestones associated with that. But aside from that, we are also open to equity investments in the company as well.

Okay. I'll drop back in queue. Thanks for taking my questions.

Thank you.

Thanks, Brett.

[Operator Instructions] Our next question is from Jeff Bernstein with Silverberg Bernstein Capital. Please proceed with your question.

Yeah, hi. Good afternoon. So, just a question on the -- and congratulations on placing those rad-hard SRAM parts for evaluation. If you were to win those programs, about how much revenue and over what time period might you be able to gain from those two satellite programs?

Sure. So one of the programs was -- and again, this is just a prototype quantity for demonstration purposes. One of them was just over $500,000 and the other one was about $150,000, and it totaled 41 parts that we shipped. You can do quick calculation with the ASPs are on those. And so, those are just the, again, prototype quantities. So, obviously, you can multiply by something. We don't have the quantities yet. These are programs that they're looking to launch within the next year. And so, it would be sometime second half of 2025 at the soonest before they release production. But certainly it would be north -- if the prototype is $500,000, you can imagine what a production might be.

And so, these would be like GEO satellites. So, these aren't satellite networks. These are going to be individual larger satellites?

These ones are X, one is GEO, one is actually LEO.

Okay. And will you get an automatic with these evaluation parts? Are you going to get a ride into space on one of these and actually get sort of provenance from that, or are we still looking to get that somewhere else?

No. So, certainly, we have -- as we've spoken in the past, we have other prototype devices we've shipped out already in the last couple of years. And so, it could be any of the programs we've said in the past or these two. One of these looks like is fairly accelerated in their timetable. So, there's a chance one of the ones we just shipped this last quarter could get up fairly quickly.

Okay. And then, just on Nokia lowest revenue from them in forever, what's the story on Nokia and the outlook for that router that you sell into?

So, they're contract manufacturers, because we send these parts to two separate contract manufacturers. And they both had a little bit of inventory, so they were burning through some inventory. As far as the -- we get, I think we've talked in the past, a 12-month rolling forecast from Nokia, and those still are coming in around the run rate we've been seeing for the last couple quarters. So, just a little bit north of what we did this past quarter, somewhere in $1 million, $1.1 million kind of range a quarter.

Okay. And at Needham, I think you also mentioned in addition to looking for a partner, potentially a financial partner, potentially a development partner, possibly a hybrid of both of those for Gemini-III. I think you also mentioned something about potentially licensing IP. It sounds like for what would probably be an edge kind of case for semiconductor IP for doing in-memory processing. Can you just talk about that? Would that be sort of an upfront license and then royalty stream, or just give some color around that?

Yeah. The IP -- well, we are more focused on the Gemini-III. So, it could be IP or it could be the product development for the customer. So, basically, I think we have -- as we mentioned in the conference call, I mean we made pretty good progress over the quarter. So -- yeah, so we're still working on it.

Thank you. There are no further questions at this time. I'd like to hand the call back to Lee-Lean Shu for any closing comments.

Thank you all for joining us. We look forward to speaking with you again when we report our fourth quarter and the full year fiscal 2024 results.

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.