Lee-Lean Shu - Chairman of the Board, President, Chief Executive Officer Douglas Schirle - Chief Financial Officer.

Kurt Caramanidis - Carl M. Hennig, Incorporated Jim Roumell - Roumell Asset Management Austin Hopper - AWH Capital George Gaspar - Private Investor.

Ladies and gentlemen, thank you for standing by. Welcome to GSI Technology's first quarter fiscal 2017 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 involves 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 been asked to advise you that this call is being recorded today, July 28, 2016 at the request of GSI Technology.

Hosting this 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 preliminary first quarter net revenue of $12.9 million, that came in within the range of guidance that we had provided earlier in the quarter. And we witnessed a return of profitability on both operating income and net income levels.

As in recent previous quarters, our gross margin came in above our operating model at 51.9%, driven by a continuing favorable mix of higher margin products. That said, during the first quarter, we continued to see slowness in our primary telecommunications and networking markets along with continued weak sales in Asia and Europe.

However, our litigation-related expenses were inconsequential as a result of the conclusion of the United Memory and Integrated Silicon Solutions trade litigation trial in December 2015 and the five-year period of expensive and the 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, obtained in our acquisition of MikaMonu last year to exploit large potential opportunities in big data, computer vision and cyber security.

With promising new products, an exciting acquisition and accompanying technologies and improving on growing profitability, we are optimistic about the year ahead of us..

We reported net income of $260,000 or $0.01 per diluted share on net revenues of $12.9 million for the first quarter fiscal 2017, compared to net loss of $917,000 or $0.04 per diluted share on net revenues of $14 million in the first quarter of fiscal 2016 and net loss of $87,000 or $0.00 per diluted share on net revenues of $12.2 million in the fourth quarter of fiscal 2016 ended March 31, 2016.

Gross margin was 51.9% compared to 52% in the prior year period and 50.3% in the preceding fourth quarter. First-quarter fiscal 2017 operating income was $389,000, compared to operating losses of $156,000 in the prior quarter and $1 million a year ago.

Total operating expenses in the first quarter of fiscal 2017 were $6.3 million, compared to $8.3 million in the first quarter of fiscal 2016 and $6.3 million in the preceding fourth quarter. Research and development expenses were $3.5 million, compared to $3 million in the prior year period and $3.4 million in the preceding quarter.

Selling, general and administrative expenses, which include litigation-related expenses, were down substantially year-over-year to $2.8 million compared to $5.3 million in the quarter ended June 30, 2015 and down sequentially from $2.9 million in the preceding quarter.

Total first-quarter pre-tax stock-based compensation expense was $443,000 compared to $463,000 in the prior quarter and $474,000 in the comparable quarter a year ago. Depreciation and amortization expense was $424,000 in the first quarter.

Sales to Alcatel-Lucent were $5.4 million or 41.9% of net revenues during the first quarter, compared to $4.3 million or 35.1% of net revenues in the prior quarter and $4.5 million or 32.1% of net revenues in the same period a year ago.

First-quarter direct and indirect sales to Cisco Systems were $1.5 million or 11.7% of net revenues, compared to $1 million or 8% of net revenues in the prior quarter and $1.3 million or 9.5% of net revenues, in the same period a year ago.

Military and defense sales were 12.5% of shipments compared to 19.5% of shipments in the prior quarter and 19.4% of shipments in the comparable period a year ago. SigmaQuad sales were 55.7% of shipments compared to 53.5% in the prior quarter and 51.9% in the first quarter of fiscal 2016.

Our Board of Directors has authorized us to repurchase, at management's discretion, shares of our common stock. Under the repurchase program, we may repurchase 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 law limitations and other factors. The repurchase program may be suspended or terminated at any time without prior notice.

During the quarter ended June 30, 2016, we repurchased 963,738 shares at an average cost of $4.05 per share for a total cost of $3.9 million.

To-date, the company has repurchased a total of 11,304,239 shares at an average cost of $5.08 per share for a total cost of $57.4 million, including 3,846,153 shares acquired for purchase at a purchase price of $6.50 per share, under a modified Dutch auction self-tender offer completed in August 2014.

At June 20, 2016, management was authorized to repurchase additional shares of our common stock with a value of up to $7.6 million under the repurchase program.

At June 30, 2016, we had $50 million in cash, cash equivalents and short-term investments, $9.4 million in long-term investments, $60.7 million in working capital, no debt and stockholders' equity of $87 million. Accounts payable at June 30, 2016 was $2.1 million compared to $2.5 million at March 31, 2016.

Net inventory was $7.6 million at June 30, 2016, up from $7.2 million at March 31, 2016. Inventory turns at June 30, 2016 were 3.3 times compared to 3.4 times at March 31, 2016. Looking forward to the second quarter of fiscal 2017, we currently expect net revenues to be in the range of $12.6 million to $13.6 million.

We expect gross margin of approximately 49% to 51% in the second quarter. Operator, at this point we will open the call to Q&A..

[Operator Instructions]. Our first question comes from Kurt Caramanidis with Carl M. Hennig, Incorporated..

Hi guys. Amazing buyback. Very, very happy with the amount of shares you got and the price you got.

Can we read confidence in your new product line into the amount of shares you are buying back?.

Well, you really can't relate one and the other. We are not buying shares ourselves. We are not placing orders. Everything is 10b5-1 plan at Needham and they have parameters that they can buy to and when shares are available they buy shares..

Right. No, I get that. You are just were able to, they did a terrific amount of shares at a good price. But it seems as though that's fairly aggressive. I guess, that was my only point is that, but that's okay. One question for you. Go ahead..

I guess to answer your question, we are very excited about the associative processor opportunity we have. We continue to feel very good about that. We are getting a lot of positive feedback from potential customers that we are talking to. So yes, we feel very good about that product.

And secondly, we feel that the company is worth a lot more than $4 or $5 a share. And think that buying back the shares benefits everyone that stays in the stock. We feel it's a good value..

Yes. We would definitely agree. And we couldn't be happier. Question on the associative computing.

Is that going to be incremental as far as when the products are launched, should we view that more as an incremental add? Is it possible transformational add? How should we view that?.

Versus our current SRAM products and the LLDRAM product line that you are referring to?.

Yes..

Yes. It's completely incremental. In fact, it's different customers as well. So we are addressing a different market space with different customers. So it will be additional to our current product offering and revenues..

Right.

I guess what I am saying is, is the level, the volume, the dollar opportunity modest or is it more exponential?.

So we haven't talked about any of those numbers to-date. But certainly, we anticipate it to be larger than what we are doing today..

Okay. Great.

Is there any way to increase the investment and maybe shorten window a little bit? Or is that like we have to spend so much time and that's just the way it is, as far as like next summer having some samples and next year having the product?.

Unfortunately, it's very hard to shorten the product cycle. It doesn't matter how much resources you put in that. We definitely want to put our best efforts trying to bring out the product. That's just the nature of how we are doing and the expenditure you [indiscernible] is the best effort. Basically we don't spare any resource over that.

All the effort trying to do that..

Okay.

So we are still looking at about a year to have some kind of sample and about 18 months or so to hit the market with some things?.

No. Right now, the planning is to tape out around calendar year 2017 fourth quarter and if everything goes well, we shall have a sample in mid-2018..

And those are consistent with the dates we talked about before..

Are we talking now calendar now or fiscal?.

We are talking calendar here..

Okay. I was thinking it was mid-2017 and then at the end of 2017 there were some products.

So it's the end of 2017, mid-2018?.

Yes. When we did the acquisition in November of last year, we were looking at a two-year cycle to get that product taped out and we haven't changed that yet. We are still looking at the same timeline. In fact, the Board wants us to do whatever we can to do it sooner and as Lee-Lean says, we will do everything we can get to get it out sooner if we can.

But we don't see right now any risk at meeting those dates..

Okay.

And then are you going to do any kind of, in the next six months or so, a road show of any type or just some conferences to let people? I don't think anybody really is aware of any of this, would be my guess, just by the way the stock has acted?.

We do go talk to people and as we have more to say about this product and we have more that we can disclose. We definitely will do that..

Okay. Great. Yes, that makes sense..

So Kurt, we have been to one conference, surely after we made the acquisition and it was discussed during that conference. But I think certainly, it's not revenue that was eminent. So I think I am not sure we are going to get the credit for a little while until we get a little closer..

Yes. That makes sense. Okay. Thanks a lot. Great quarter for a buyback, though..

Thanks Kurt..

Our question comes from Austin Hopper with AWH Capital. Our next question will with Jim Roumell with Roumell Asset Management..

Thank you. Hi Doug..

Hi..

Wondering again, if you could just provide in as simple language as you can and perhaps one of the technologist on the call? The patent protection on the associative processing technology, I guess one of the things that I think investors are interested in learning about, as exciting as this technology is, any kind of general color or feedback you have gotten from people you have shown the technology to, would be helpful.

But equally so is, how is this differentiated and why can't it be knocked off down the street? Just some of the moats, if you will that protect the technology that you acquired from MikaMonu?.

The patent protection..

Yes. Well, the patent, the way the associate computing works is we do the calculation of logic operation in the memory array. And the patent we have got basically is surrounding that basic technology. So that's a very drastically different today from what people do it in the processor, microprocessor design.

So that's how we believe the patent that we, basically things will be less media. We don't really have other people doing that and we have pretty well defined in that technology. That's how we believe we have the patent protection in that..

Yes. I think we filed a total of about 15 patents or so we got when we did the acquisition and there have been others that have been applied for, subsequent to the acquisition. In addition we have had one or two additional patents since the acquisition.

So we just feel that we have pretty strong protection against the architecture and how the part works and what it does..

Got it.

And the feedback you have gotten from customer, the favorable feedback you have gotten from customers that you have shown the technology to, the speed, the efficiency and what not, they are basically not kind of another ship that is effectively equaling the features of this technology?.

So we went through this process during the due diligence when we were acquiring MikaMonu and certainly, the very large companies that we were discussing MikaMonu with had told us that they had surveyed all the technologies that were out there and that were coming and nothing touched this.

And certainly the conversations we have continued to have to-date with these large big data guys. There is certainly no indication that there is anything that touches the technology at this point or that they have seen or that they have been told is coming..

And when you talk about big data users, they are the normal usual suspects, Amazon and a lot of these big data processors of Silicon Valley?.

That's correct..

Okay. Thank you..

Thanks Jim..

And we will hear next from Austin Hopper with AWH Capital..

Hi guys. Thanks for taking my question and thanks for all the updates on MikaMonu. I dropped off for a second. Can you tell us what the investment is on a quarterly basis, expense wise on MikaMonu? Okay. Thank you..

We are looking at additional spend over and above of what we currently have in place of maybe in the range of $2 million or so a year, maybe $2.5 million in terms of added cost.

There are some other things we are looking at that could be significant in terms of $1 million or $2 million bites each but we are still taking a look at how we want to put the chip together fully. We feel that we have got plenty of cash in the bank.

If you take a look at our current product line and offerings and gross margins and the ability to generate cash, we should be able to stay in the range of cash flow neutral or positive, depending on how far we go in terms of accelerating this for the Board. So we don't really right now see an issue in terms of being able to fund this..

So I don't see an issue of funding.

So what did you spend in the quarter?.

In the quarter, probably in the range of about $400,000 to $500,000..

$400,000 to $500,000.

And you think incrementally, it would be more than that?.

Well, it depends on the quarter. If you four times that and we add some additional resources, we are probably looking at around $2.5 million range now..

Okay. Great. Thank you..

Thanks Austin..

And our final question comes from George Gaspar, a private investor..

Yes. Thank you and good afternoon everyone.

Very nice start buyback and my first question, the share count outstanding currently is how many shares?.

In the range of 21 million..

21 million and you repurchased 11 million now, correct?.

A little over 11 million..

Okay. So you effectively pass the one-third stock buyback..

Yes..

That's very impressive and considering your financial capability that you have and you are doing all this R&D stuff now, building that up, a question on the revenue side. It looked liked the Cisco sales picked up..

That's correct..

Is there is something new going on there in terms of where you are supplying the SRAM into at Cisco that turned this around? Can you can you talk about at all?.

So for this past quarter, the bump that we had was more along the lines of another competitor having an issue that we filled their delinquency..

I see. Okay.

And then a question on as you are moving forward here on your general SRAM business and the applications, are you seeing new application opportunities over the near, immediate, intermediate term for you? Or has something been demonstrated already in the recent past quarter?.

Yes. So we actually have started to see some new revenues with the new products that we introduced last year and a little bit into the year before, which is specifically our 144 megabit SQ3 and also the SQ4.

We have gotten a few design wins and some of the prototype orders for those and the also with ramp quicker than I had expected was actually our 288 megabit SQ2 and SQ3. So these are density upgrades over the 144 megabit and we have actually seen a fair amount of wins there.

The volumes haven't been enormous yet, but certainly it's all new design wins and is trending positively. So we are excited about that..

Okay. That sounds very good. And based off of what Arris, ARRS, reported today in terms of their results, things seem to be going very well in terms of upticking in what should be the generalization of the area of activity that you are in on revenue side, which is the very positive. Thank you very much..

Thanks George..

[Operator Instructions]. It appears there are no further questions from your audience..

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

This does conclude today's conference. We thank you for your participation. You may now disconnect..