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DATE
Thursday, January 29, 2026 at 4:30 p.m. ET
CALL PARTICIPANTS
- Chairman, President, and Chief Executive Officer — Lee-Lean Shu
- Vice President, Sales and Marketing — Didier Lasserre
- Chief Financial Officer — Douglas Schirle
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TAKEAWAYS
- Revenue -- $6.1 million, representing a 12% increase year over year and a 28.5% increase fiscal year-to-date.
- Gross Margin -- 52.7%, compared with 54% in the prior year and 54.8% in the prior quarter; decline attributed to product mix.
- Operating Expenses -- $10.1 million versus $7 million a year ago and $6.7 million in the prior quarter.
- Research and Development Expense -- $7.5 million, up from $4 million in the prior year and $3.8 million in the preceding quarter, due to IP purchase for PLATO and related consulting.
- Net Loss -- $3 million or $0.09 per diluted share; included $3.6 million in interest and other income, a $6.2 million non-cash warrant valuation adjustment, $2.8 million issuance costs, and a $251,000 tax benefit.
- Cash and Cash Equivalents -- $70.7 million as of quarter end, up primarily from $46.9 million in net proceeds raised in an October 22, 2025, registered direct offering.
- Fourth Quarter Outlook -- Net revenues projected between $5.7 million and $6.5 million, with gross margin guidance in the 54%-56% range.
- Customer Concentration -- KYEC revenue accounted for $1.1 million or 17.9% of net revenue, Nokia $675,000 or 11.1%, and Cadence $233,000 or 3.8% in the period; values diverged materially from comparable prior periods for each customer.
- Government Funding -- More than $1 million in expected funding for Sentinel proof-of-concept, to offset R&D expenses.
- Gemini II Benchmarks -- Achieved three-second time to first token (TTFT) for HLON tasks using text and video input at approximately 30 watts system power, with management citing "up to three times faster first token at a lower power than the competitive chip on the same workload."
- Segment Shipment Mix -- SigmaQuad products constituted 41.7% of shipments, military defense 28.5%.
- Product Development Progress -- PLATO hardware development underway following IP acquisition, with operations targeted for early 2027, and ongoing Gemini II edge AI proof-of-concept initiatives.
SUMMARY
GSI Technology (GSIT 2.42%) secured increased cash reserves following a significant capital raise, resulting in substantial working capital and equity growth. The company emphasized its differentiated edge AI positioning by reporting competitive Gemini II benchmark results and deepening ties with defense and commercial partners through funded projects and proof-of-concept engagements. New disclosures initiated for cash flow components signal added financial transparency for future reporting periods.
- Management asserted that edge inference performance metrics such as TTFT and power efficiency are now prioritized over traditional peak training performance for prospective customers.
- Current and prospective government projects—including SBIR, BAA, and other funding opportunities—may expand non-dilutive capital sources according to company commentary.
- Government funding for the Sentinel and related programs is designated specifically for offsetting development expenses, not general cash consumption.
- Shift in customer revenue contributions highlights changes in product and geographic end-market exposures for the period.
- Company plans further improvements to Gemini II’s TTFT within the next five months in advance of planned government demonstrations and commercial proof-of-concept use cases.
INDUSTRY GLOSSARY
- APU (Associative Processing Unit): A specialized chip architecture designed for tasks involving similarity search and AI inference at memory-level data speeds rather than traditional CPU/GPU compute structures.
- TTFT (Time to First Token): The elapsed time from input initiation to the model producing its first output token, a critical responsiveness metric in edge AI and surveillance applications.
- SBIR (Small Business Innovation Research): A U.S. government program that provides non-dilutive R&D funding to small and emerging technology companies focused on federal objectives.
- BAA (Broad Agency Announcement): A government contracting mechanism to solicit research proposals on specific high-level topics, often outside the traditional procurement process.
- SigmaQuad: A proprietary high-performance, high-bandwidth static random access memory (SRAM) product line used primarily in telecom and defense applications.
Full Conference Call Transcript
Lee-Lean Shu: And thank you for joining us to review our third quarter fiscal 2026 results. I am encouraged by our overall progress this quarter. Revenue in the third quarter increased by 12% year over year and 28.5% on a fiscal year-to-date basis. Demand for our excellent products remains solid, and we expect strong sales from our largest customers. In 2026, after completing all financials in fall 2025, we will defend our APU roadmap. We begin PLATO hardware development after purchasing the required IP. We have also added contract engineers to support our hardware design team, keeping us on track to take operation in early 2027.
We finalized the agreement with G2 Tech, the Israel-based AI company, for our recently announced proof of concept. We are partnering with G2 Tech on Sentinel, a program for autonomous perimeter security using drones and cameras. The project is backed by the US Department of War and a foreign government agency. This government funding will offset our cost to build a software stack and the libraries needed for this project. Didier will share more details shortly. Another recent milestone is Gemini II's time to first token benchmark, announced in the press release earlier today. For those who have not reviewed it, please see today's release for the full detail on the benchmark result and the methodology.
Accordingly, we reported three-second time to first token, or TTFT, performance for HLON with text and video input, consuming approximately 30 watts of system power. Compared to third-party testing of competitive platforms, Gemini II's TTFT delivered up to three times faster first token at a lower power than the competitive chip on the same workload. We believe these test results validate Gemini II's fast response for edge use cases that need low power and low latency. In his comments, Didier will expand on the benchmark results. We are making steady progress for the Benzene pretzel, continue to improve Gemini II performance, and completing the 17 of watches.
We are also pursuing early proof of concept and prototyping opportunities for Gemini II in systems in different programs, including zone and unmanned systems, and in selected commercial edge deployments. In parallel, we continue to pursue long-diluted R&D funding through government defense programs and strategic partners. With that, I hand the call over to Didier Lasserre.
Didier Lasserre: Thank you, Lee-Lean. I will start by expanding on some of Lee-Lean's comments. On the Sentinel POC, we expect to receive more than $1 million in government funding. We will record this as an offset to R&D expenses. We plan to use it to complete key software milestones for the project, including software development for GEMMA 312B on our Gemini II ahead of the planned demonstration to the government agencies later this year. Our POC partner, G2 Tech, is receiving additional funds to develop the drone platform for this demo. I am pleased to share that G2 Tech conducted a competitive evaluation, and GSI was selected based on Gemini II's performance, delivering the lowest TTFT at 30 watts.
If the government evaluation later this year is successful, it could lead to a potential Gemini II design win with G2 Tech, and we would move to pursue additional opportunities with other drone and unmanned system customers beyond the POC sponsors. Turning to today's press release, our Gemini II TTFT benchmarks discussed preliminary results showing a three-second time to first token for a multimodal model at the edge using video and text inputs at approximately 30 watts of system power. TTFT is how long it takes the system to produce the first response, which is critical for drones and unmanned systems. The threshold for a useful TTFT in video surveillance to ensure nothing is missed is three seconds.
That means we are sampling the video image every three seconds. If the TTFT is ten seconds, it takes too long, so the surveillance video could miss something. In preparation for the Sentinel demo, we will continue improving TTFT over the next five months to further reduce Gemini II's first time to response. What's exciting for GSI about these Gemini II preliminary benchmark results is that they demonstrate what compute and memory can provide for physical AI: faster time to first token and materially lower chip power. This will help enable a broader set of viable, cost-effective deployments.
For added color, at CES 2026, there was a clear shift towards edge AI and physical AI systems that must make real-time decisions under tight power constraints. In that context, Intel noted that TOPS, the number of operations per second, does not tell the whole story. What matters more in edge AI and physical AI is real-world workload performance and efficiency. That is the takeaway for us as well. For edge inference, performance per watt and responsiveness matter more than peak training metrics. We are confident that our compute and memory APU architecture, designed to reduce data movement, is well-suited for power-constrained edge inference.
Our near focus is to continue validating this with additional benchmarks and customer proof of concepts and convert that progress into design wins for Gemini II. To be clear, we are not trying to compete with folks at training and data centers. Our goal is to be a strong option for fast, low-power edge AI applications. Switching to the customer and product sales breakdown, in 2026, sales to KYEC were $1.1 million or 17.9% of net revenues, compared to $1.2 million or 22.7% of net revenues in the same period a year ago, and $802,000 or 12.5% of net revenues in the prior quarter.
Sales to Nokia were $675,000 or 11.1% of net revenues compared to $239,000 or 4.4% of net revenues in the same period a year ago, and $200,000 or 3.1% of net revenues in the prior quarter. Sales to Cadence Design Systems were $233,000 or 3.8% of net revenues compared to $971,000 or 17.9% of net revenues in the same period a year ago, and $1.4 million or 21.6% of net revenues in the prior quarter. Military defense sales were 28.5% of third-quarter shipments compared to 30% of shipments in the comparable quarter a year ago, and 28.9% of shipments in the prior quarter.
SigmaQuad sales were 41.7% of third-quarter shipments fiscal 2026 compared to 39.1% in 2025 and 50.1% in the prior quarter. I would now like to hand the call over to Douglas Schirle. Go ahead, please.
Douglas Schirle: We reported net revenues of $6.1 million for 2026, compared to $5.4 million for 2025 and $6.4 million for 2026. Gross margin was 52.7% in 2026 compared to 54% in 2025 and 54.8% in the preceding 2026. The decrease in gross margin in 2026 was primarily due to product mix. Total operating expenses in 2026 were $10.1 million compared to $7 million in 2025 and $6.7 million in the prior quarter. Research and development expenses were $7.5 million compared to $4 million in the prior year period and $3.8 million in the prior quarter.
The increase in research and development spending compared to the prior quarter is primarily due to the purchase of IP for the development of PLATO and associated consulting expenses. Selling, general, and administrative expenses were $2.6 million for the quarter ended December 31, 2025, compared to $3 million in the prior year quarter and $3 million in the previous quarter. Third-quarter fiscal 2026 operating loss was $6.9 million compared to an operating loss of $4.1 million in the prior year period and an operating loss of $3.2 million in the prior quarter.
Third-quarter fiscal 2026 net loss included interest and other income of $3.6 million reflecting a non-cash accounting adjustment of $6.2 million for the change in fair value of the prefunded warrants and issuance costs of $2.8 million in the recent registered direct offering, and a tax benefit of $251,000 compared to $70,000 in interest and other income and a tax provision of $44,000 for the same period a year ago. In the preceding second quarter, net loss included interest and other income of $43,000 and a tax provision of $41,000. Net loss in 2026 was $3 million or $0.09 per diluted share compared to a net loss of $3.2 million or $0.11 per diluted share in 2026.
For the prior year 2025, net loss was $4 million or $0.16 per diluted share. Total third-quarter pretax stock-based compensation expense was $783,000 compared to $429,000 in the comparable quarter a year ago and $856,000 in the prior quarter. Beginning this quarter, GSI is expanding the cash disclosures in its quarterly earnings release process to help investors understand the company's cash consumption and cash generation. Going forward, we will disclose the beginning cash balance, net cash used by operating activities, net cash used by investing activities, and net cash provided by financing activities. This will complement the condensed consolidated statement of cash flows included in our Forms 10-K and 10-Q.
Cash flows for the quarter ended December 31, 2025, in thousands of dollars: Cash and cash equivalents as of September 30, 2025, were $25.3 million. Net cash used in operating activities was $7.9 million. Net cash used in investing activities was $296,000, and net cash provided by financing activities was $53.5 million. Cash and cash equivalents as of December 31, 2025, were $70.7 million. The increase in cash and cash equivalents as of December 31, 2025, primarily reflects $46.9 million in net proceeds from the company's October 22, 2025, registered direct offering. Cash used in operation activities includes spending for the development and commercialization of Gemini II and PLATO.
As of December 31, 2025, we had $70.7 million in cash and cash equivalents compared to $13.4 million as of March 31, 2025. Working capital was $71.7 million as of December 31, 2025, versus $16.4 million as of March 31, 2025. Stockholders' equity as of December 31, 2025, was $83.6 million compared to $28.2 million as of the fiscal year ended March 31, 2025. Before I hand the call over to the operator for Q&A, I would like to provide the fourth quarter fiscal 2026 outlook. Current expectations for the upcoming fiscal fourth quarter are net revenues in the range of $5.7 million to $6.5 million with a gross margin of approximately 54% to 56%.
Operator, at this point, we will open the call to Q&A.
Operator: Thank you. Please press 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. It may be necessary to pick up your handset before pressing the star keys. In the interest of time, we ask that you limit yourselves to one question and one follow-up and then return to the queue for any other follow-ups. Thank you. Our first question comes from the line of Quinn Bolton with Needham and Company. Please proceed.
Robert Christian: Hi, guys. This is Robert Christian on for Quinn here. Congrats on all of the progress on Gemini II. I just wanted to ask, you also announced during the quarter a partnership with G2 Tech as well. You know, and you know, that application for defense. Maybe how important is kind of the defense applications for Gemini II? You know, how does that establish the capabilities of Gemini in sort of real-world applications? And can you speak to potential commercial uses beyond kind of drones and defense and how this may impact the business going forward?
Didier Lasserre: Sure. So certainly, the military and defense area have been, you know, the sectors that we have had our early successes in. We have talked about it in the past. You know, we have had some of the SBIR wins with entities under the DOD or DOWS as it is called today, specifically with the Air Force, Space Development Agency, and US Army. We certainly have had some successes there in, you know, getting the message out. We have also talked about a SAR application, a board that we sent out to an offshore defense contractor for a Leo satellite for SAR in which they are, you know, doing their evaluation now.
So, certainly, this is the area that has adopted our technology most quickly. And as you mentioned, with G2 Tech, it is really a nice partnership because they are able to actually bring a product using our subsystem APU to create a true product. In this case, like you said, a drone and camera surveillance system. Can you repeat the last part of the sentence or the question, though?
Robert Christian: Yeah. I guess how much will be...
Didier Lasserre: Yeah. Yeah. So good point. So the effort we are doing right now with this POC, you know, this time to first token and the whole GEMMA 312B, you know, lends itself to other applications outside of drones and unmanned vehicles, things like smart cities, things like robotics. And so, certainly, we will be able to leverage all the work we are doing now for this current POC with G2 Tech for these other markets as well.
Robert Christian: For sure. Thanks for that. And just one more on you mentioned that government funding as a catalyst for 2026. Can you talk through maybe potential timelines of when you expect this funding to come in? Any other details that you have on that front would be great.
Didier Lasserre: Yes. So for SBIRs, we have a continuous pipeline of submittals. So we have, you know, a handful right now that have already been submitted, and we are waiting for word on whether we have been awarded or not. And we have others that we are putting together. This is an ongoing process, and there are different levels. They fall under, you know, the classic SBIRs. There are also other areas like BAA, which stands for Broad Agency Announcement, I believe. It is trafficified. There are other programs where other fundings are involved. We are active in all those areas. Again, the benefit of this funding is it is non-dilutive.
First and secondly, it allows us to get more exposure within the DOD elements for future business.
Robert Christian: Great. Thanks. That is all for me for now. Thank you.
Operator: If you would like to ask a question, please press 1, and a confirmation tone will indicate your line is in the question queue.
Lee-Lean Shu: Seems like there are no more questions from the investors. Thank you all for joining us. We look forward to speaking with you again for our fourth quarter and the full year fiscal 2026 results. Thank you.
Operator: Thank you. This concludes today's conference. You may disconnect your lines at this time. And thank you for your participation.