QuickLogic Corporation — Q1 2020 Form 10-Q
Reporting period: Three months ended March 29, 2020; comparisons are with the three months ended March 31, 2019 unless stated otherwise. QuickLogic develops low-power semiconductor platforms, eFPGA intellectual property, and sensor-processing software, including products from its SensiML subsidiary. Amounts below are in U.S. dollars; financial statement amounts are in thousands unless noted.
Financial performance
| Metric | Q1 2020 | Q1 2019 | Change |
|---|---|---|---|
| Revenue | $2.158 million | $3.194 million | Down 32% |
| Gross profit / margin | $1.115 million / 52% | $1.979 million / 62% | Margin down 10 percentage points |
| Operating expenses | $4.177 million | $5.688 million | Down 27% |
| Operating loss | $3.062 million | $3.709 million | Loss narrowed |
| Net loss | $3.165 million | $3.476 million | Loss narrowed 9% |
| Basic and diluted loss per share | $0.38 | $0.50 | Improved |
| Net cash used in operating activities | $2.175 million | $2.916 million | Use of cash decreased |
Revenue from new products was $486,000, down 29%; mature-product revenue was $1.672 million, down 33%. The company attributed lower new-product revenue primarily to weaker display-bridge sales and lower mature-product revenue primarily to reduced aerospace and avionics shipments. Gross margin fell mainly because of fewer shipments of higher-margin mature products. The 2019 comparison includes SensiML, acquired in January 2019.
Research and development expense decreased 44% to $1.819 million, and selling, general and administrative expense decreased 23% to $1.879 million. These reductions reflected lower compensation and stock-based compensation, restructuring-related changes, and lower outside-services costs. Q1 2020 included $479,000 of restructuring charges, primarily employee severance. The company also reversed previously recorded stock-based compensation after performance goals were not met and certain awards were cancelled; total stock-based compensation was a $398,000 credit versus $951,000 of expense in Q1 2019.
Financial position and liquidity
- Cash and cash equivalents were $18.898 million at March 29, 2020; restricted cash was $100,000, for total cash, cash equivalents and restricted cash of $18.998 million. Cash and restricted cash declined $2.550 million during the quarter.
- Current assets were $24.744 million and current liabilities were $18.037 million. Total assets were $29.911 million; total liabilities were $19.676 million; stockholders’ equity was $10.235 million.
- The $15.0 million revolving credit facility was fully drawn, bearing interest at 5.5% and maturing September 28, 2021. The company reported compliance with its loan covenants at quarter-end; the facility requires at least $3.0 million of unrestricted cash at Heritage Bank and is secured by substantially all assets.
- Lease liabilities totaled $2.414 million, including $772,000 of finance lease liabilities. Operating cash use was $2.175 million; investing cash use was $290,000, including $253,000 of capitalized internal-use software; financing cash use was $85,000.
- On May 6, 2020, after quarter-end, the company obtained a $1.192 million PPP loan at 1% interest, with a two-year maturity and payments beginning after six months. Forgiveness was not assured.
Management said existing cash and resources from the revolving facility were expected to fund operations and capital expenditures for the next 12 months. Longer-term liquidity depends on sales growth, continued access to credit or replacement financing before the facility matures, and potentially raising additional capital. Management provided no quantified revenue or earnings guidance.
Outlook, risks and other notable items
- COVID-19: The company reported supply-chain, logistics, customer-deployment and operational-process delays, although it said identified alternatives had prevented a material impact on its ability to fulfill demand to date. It expected adverse effects on Q2 2020 revenue and results, potentially extending into later quarters. Further supply constraints or weaker customer demand could materially harm results and cash flows.
- Cost actions: The January restructuring was intended to lower annual operating expenses; $93,000 of the recorded restructuring liability remained unpaid at quarter-end and was expected to be paid in Q2.
- Revenue concentration: Two distributors represented 38% and 25% of Q1 revenue. Multiple customers and distributors each represented at least 10% of revenue or receivables, creating customer and collection concentration exposure.
- Supply and commitments: QuickLogic depends on a limited number of contract manufacturers and suppliers, often a single source per device. At quarter-end, wafer and finished-goods commitments were $51,000 and other purchase commitments were $795,000, most due within 12 months.
- Contingencies: The filing reported no litigation at March 29, 2020. It described ordinary-course legal risks, including potential intellectual-property claims. U.S. tax years from 1999 onward remain effectively open to examination; the company maintains a valuation allowance against U.S. and certain foreign deferred tax assets.
- Share count: Reported share and per-share figures reflect the 1-for-14 reverse stock split effective December 23, 2019. Weighted-average shares rose to 8.362 million from 6.916 million; the loss per share therefore should be considered alongside the changed share base.
Important facts for investors to verify
- Whether COVID-19 materially affected Q2 and subsequent revenue, customer deployments, supply availability, and cash needs.
- Whether the company maintained the revolving-facility cash and covenant requirements, and its plan for refinancing or replacing the facility before September 2021.
- Whether the PPP loan was forgiven or repaid, and how its proceeds and repayment obligations affected liquidity.
- Whether new-product and SensiML sales grew sufficiently to offset declines in mature products and support a path toward profitability.
- How recurring operating cash use, customer/distributor concentration, and reliance on single-source suppliers evolved.
- The sustainability of lower operating expenses, given restructuring costs and the substantial stock-based compensation reversal in Q1.