Lee-Lean Shu - Chairman, President & Chief Executive Officer Douglas Schirle - Chief Financial Officer Didier Lasserre - Vice President, Sales.

Jon Dudzinski - Carl M. Hennig.

Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology's Fourth Quarter Fiscal 2016 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 joining 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 the 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, May 05, 2016 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 everyone and thank you joining us. Today, we reported fourth quarter net revenue of $12.2 million, that came in within the range of guidance that we had provided earlier in the quarter. As in prior quarters, our gross margin came in above our operating model at 50.3%, driven by a continuing favorable mix of higher margin products.

As in prior quarters, we continued to see slowness in the telecommunications and the networking markets and continued weak sales in Asia. SG&A related expenses in the fourth quarter of fiscal 2016 was $222,000 down substantially from $2.4 million in the previous quarter and $3.5 million in the same period a year ago.

On a positive note, our litigation-related expenses were substantially reduced in the fourth quarter as a result of the conclusion of the UMI/ISSI trial. We are pleased that the five-year period of expensive and time-consuming legal proceedings is now behind us.

As we look forward, we are focused on expanding our market position in the high speed SRAM and low-latency DRAM segments and developing exciting new products based on our associative computing technology and intellectual property acquired from MikaMonu in November 2015 to exploit large potential opportunities in big data, computer vision and cyber security..

For the year, we reported net loss of $2.2 million or $0.10 per diluted share and net revenues of $52.7 million, compared to a net loss of $5 million or $0.20 per diluted share and net revenues of $53.5 million from the fiscal year ended March 31, 2015. Gross margin is 50.7% compared to 47% in the prior year.

Total operating expenses in fiscal 2016 were $29.8 million compared to $31.2 million in fiscal 2015. Research and development expenses were $12.1 million in fiscal 2016 compared to $11.9 million in the prior fiscal year.

And selling and general and administrative expenses, which included litigation related expenses were $17.7 million compared to $19.2 million in fiscal 2015. Litigation related expenses in fiscal 2016 were $6.7 million, down from $8.6 million in fiscal 2015.

The litigation related expenses were incurred in connection with patent infringement and antitrust litigation involving Cypress Semiconductor, which was settled in May 2015, and a commercial and trade secret lawsuit against United Memories and Integrated Silicon Solutions.

As previously reported trial of the UMI/ISSI litigation began on October 26, 2015 and concluded on November 23, 2015 with mixed results.

We reported a net loss of $87,000, or $0.00 per diluted share, on net revenues of $12.2 million for the fourth quarter of fiscal 2016, compared to net loss of $2.7 million, or $0.12 per diluted share, on net revenues of $13.1 million in the fourth quarter of fiscal 2015 and a net loss of $819,000, or $0.04 per diluted share, on net revenues of $12.9 million in the third quarter of fiscal 2016, ended December 31, 2015.

Gross margin was 50.3% compared to 49.6% in the prior year period and 49.4% in the preceding third quarter. Fourth quarter fiscal 2016 operating loss was $156,000 compared to operating losses of $1.6 million in the prior quarter and $2.9 million a year ago.

Total operating expenses in the fourth quarter of fiscal 2016 were $6.3 million compared to $9.4 million in the fourth quarter of fiscal 2015 and $7.9 million in the preceding third quarter. Research and development expenses were $3.4 million, compared to $3 million in the prior year period and $2.8 million in the preceding quarter.

The increase in research and development expenses compared to the prior periods is primarily due to development activity on our new associative computing products.

Selling, general and administrative expenses were down substantially year-over-year to $2.9 million compared to $6.3 million in the quarter ended March 31, 2015, and down sequentially from $5.2 million in the preceding quarter due to completion of the litigations discussed above.

The fourth-quarter pre-tax stock-based compensation expense was $463,000 compared to $414,000 in the prior quarter and $544,000 in the comparable quarter a year ago. Depreciation and amortization expense was $422,000 for the fourth quarter.

Sales to Alcatel-Lucent were $4.3 million, or 35.1% of net revenues during the fourth quarter compared to $4.8 million or 37.1% of net revenues in the prior quarter and $3.6 million or 27.4% of net revenues in the same period a year ago.

Fourth quarter direct and indirect sales to Cisco Systems were $1 million, or 8% of net revenues compared to $1.1 million or 8.9% of net revenues in the prior quarter and $1.4 million or 10% of net revenues, in the same period a year ago.

Military/defense sales were 19.5% of fourth quarter shipments, compared to 15.8% in the prior quarter and 17.9% in the comparable period a year ago. SigmaQuad sales were 53.5% of fourth quarter shipments compared to 54.9% in the prior quarter and 44.7% in the fourth quarter of fiscal 2015.

Our Board of Directors has authorized us to repurchase at management’s discretion shares of our common stock. Under the repurchase program, we may purchase shares from time to time on the open market or in private transactions.

The specific timing and amount of repurchases will be dependent on market conditions, securities loss limitations and other factors. The repurchase program may be suspended or terminated at any time without prior notice.

During the quarter ended March 31, 2016 we repurchased $794,055 shares at an average cost of $3.71 per share for a total of $2.9 million.

To date, the Company has repurchased a total of 10,340,501 shares at an average cost of $5.18 per share for a total cost of $53.5 million, including 3,846,153 shares acquired for purchase, and a purchase price of $6.50 per share, under a modified Dutch auction self-tender offer completed in August 2014.

At March 31, 2016, management was authorized to repurchase additional shares of our common stock with a value of up to $1.5 million under the repurchase program.

At March 31, 2016, the Company had $55.1 million in cash, cash equivalents and short-term investments and $11.1 million in long-term investments, $62.7 million in working capital note debt and stock comps equity of $89.9 million. Accounts payable at March 31, 2016 was $2.5 million compared to $3 million at March 31, 2015.

Net inventory was $7.2 million at March 31, 2016, down from $8.4 million at March 31, 2015. Inventory turns at March 31, 2016 were 3.4 times to produce 3.1 times at March 31, 2015. Looking forward to the first quarter of fiscal 2017, we currently expect net revenues to be in the range of $12.2 million to $13.2 million.

We expect gross margin of approximately 48% to 50% in the first quarter. Operator at this point, we will open the call to Q&A..

Thank you [Operator Instructions]. And we have a question from Jon Dudzinski with Carl M. Hennig..

Hi, congratulations on legal fee is fine, looking like they're going to end. I'm sure that is even better for you, or a news for you than it is for me. One question I had was regarding your acquisition, the one in Israel.

And the technology there sounds pretty exciting and I was wondering if you guys could update us on how that’s going so far, and if you’re sticking to the timeline you gave us before on when you’re expecting trails that to begin.

And when you’re looking for commercialization?.

Sure. So this is Didier. So we are continuing on the timeline we talked about. So we -- the definition of the device is taking a little longer than we anticipated and the reason I say that it's because it's a little different than what we’ve got in the past, which has been strictly a hardware solution.

With this product, it's both a hardware and a software or library solution. And so there is some tradeoffs depending on what you do in hardware and will make life easier on hardware and software and vice versa.

So, there has been a lot of discussions going back and forth between the hardware teams and the software teams to get that perfect recipe and we’re just about there in the definition. So the definition has taken about a month longer than we anticipated. The good news is it hasn’t affected the schedule we’ve talked about.

So we’re still in line to have some emulation type FEJ board this year, sometime in the third to fourth quarter at the latest and I am talking calendar quarters. We’re still looking at mid-year next year for the tape out of the device tape up being when the design is completed.

And then the follow on we’re looking to have samples for customers, certainly the earliest would be the end of 2017, but probably more reasonable would be the beginning of calendar 2018.

Can you repeat the first part of the question, that was the scheduled part, and the first part was?.

That was pretty much it. I think you did a pretty good job of covering everything..

Okay..

I guess and if I can follow up -- to switch gears here.

Regarding the weaker sales, would you attribute that to just overall weakness in your customer markets, or that your customers are moving to products that are in house or just moving away from your products?.

So if I look at the weakness quarter-on-quarter, it was really with our top telecom customers. Some of them were just -- I'm not sure if it's seasonality or what have you, because they’re bouncing back this quarter.

As we’ve guided we’ve guided up and it's primarily because of the telecom rebound and the customers we have that were a little weak last quarter. We also had some other weakness in that sector. If you’re familiar with what happened with ZTE last quarter, we were not allowed to ship products for the last month because of some regulation.

That has been lifted by the government and certainly for our cost of product so that will continue back this quarter. The last quarter had some strength in the military. I anticipate military to be down a little bit this quarter.

So the answer to your question is the telecom folks were down but we’re seeing a rebound this quarter and the military was up last quarter and that should come down just a little bit. So it's kind of different markets up and down..

Great. Thank you very much. .

You're welcome..

Thank you [Operator Instructions]. And with no additional questions, I'd like to turn the conference back over to our speakers for any additional or closing remarks..

Thank you all for joining us. We look forward to speaking with you again when we report our fiscal first quarter 2017 results. Thank you..

Thank you. And ladies and gentlemen, once again that does conclude today’s conference. Thank you all again for your participation..