QuickLogic Corporation — Q2 2019 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2019; comparisons are to the quarter and six months ended July 1, 2018. Figures are in U.S. dollars unless noted. QuickLogic develops low-power semiconductor platforms, eFPGA intellectual property and sensor-processing software. Its January 2019 acquisition of SensiML added an AI software toolkit.
Financial performance
| Metric | Q2 2019 | Q2 2018 | Six months 2019 | Six months 2018 |
|---|---|---|---|---|
| Revenue | $2.087 million | $3.122 million | $5.281 million | $5.886 million |
| Gross profit | $1.022 million | $1.530 million | $3.001 million | $2.919 million |
| Gross margin | 49% | 49% | 57% | 50% |
| Operating loss | $(4.533) million | $(3.446) million | $(8.242) million | $(7.317) million |
| Net loss | $(4.634) million | $(3.484) million | $(8.110) million | $(7.454) million |
| Net loss per share | $(0.05) | $(0.04) | $(0.09) | $(0.09) |
- Q2 revenue fell 33% year over year. New-product revenue declined 55% to $711,000, mainly from lower connectivity and display sales, partly offset by eFPGA licensing. Mature-product revenue declined 11% to $1.376 million.
- For the first half, revenue fell 10%. New-product revenue declined 51% to $1.398 million; mature-product revenue rose 29% to $3.883 million, supported by aerospace, test and instrumentation orders.
- Q2 gross margin was unchanged year over year. First-half margin improved to 57%, attributed to a more favorable mix, including mature products, SensiML SaaS and eFPGA license revenue.
- Q2 operating expenses increased 12% to $5.555 million: R&D rose 36% to $3.215 million, primarily due to SensiML and stock compensation; SG&A fell 10% to $2.340 million. First-half operating expenses rose 10% to $11.243 million.
- First-half operating cash use was $5.970 million, versus $7.473 million in the prior-year period. Investing cash use was $503,000, primarily for equipment and improvements; financing provided $8.161 million, including proceeds from the June share offering.
Financial position and capital
- At June 30, cash and cash equivalents were $28.051 million, plus $100,000 restricted cash. Current assets were $34.889 million and current liabilities $18.716 million.
- Period-end debt included $15.0 million drawn on the $15.0 million Heritage Bank revolving facility, at 6% interest, and $230,000 of finance lease liabilities. The revolver matures September 28, 2020; the company reported covenant compliance and a requirement to maintain at least $3.0 million of unrestricted cash at Heritage Bank.
- On July 1, 2019, QuickLogic repaid $12.0 million of the revolver; the filing says the amount would be available for subsequent drawdown. The repayment occurred after quarter-end.
- The June public offering issued 18.4 million shares at $0.50 per share and generated approximately $8.3 million in net proceeds, according to the filing. Shares outstanding were 116.121 million at June 30, compared with 95.513 million at December 30, 2018.
- Lease adoption and new office leases contributed to $2.417 million of right-of-use assets and $2.330 million of lease liabilities at quarter-end.
Outlook, risks and other notable items
- Management said existing cash and expected access to the revolver should fund operations and capital expenditures for the next 12 months. Longer-term liquidity depends on new-product sales, renewal or replacement of the revolver before September 2020, and potentially raising additional capital. No numerical revenue or earnings guidance was provided.
- Management identified revenue variability, conversion of design opportunities, product acceptance and product life cycles, manufacturing capacity, inventory and wafer commitments, lender covenant compliance, and access to debt or equity financing as factors that could affect liquidity. It cautioned that insufficient sales or inability to raise capital could materially harm operations and financial condition.
- SensiML’s revenue contribution was not significant in the first half; related operating expenses were $629,000 in Q2 and $1.4 million in the first half. Purchase-price allocation remained preliminary.
- Revenue concentration was significant: Distributor A represented 40% of Q2 revenue, while customers B and E each represented 18%. The company also relies on a limited number of suppliers and contract manufacturers, in some cases a single provider for particular services.
- The company reported no litigation as of June 30 and no material changes in contractual obligations from its prior annual report. Purchase obligations for inventory and other goods and services totaled approximately $1.3 million.
Important facts for investors to verify
- Whether new-product sales, especially connectivity and display products, stabilize and whether eFPGA and SensiML offerings generate material recurring revenue.
- Cash burn, the availability and terms of revolver borrowings after the July repayment, covenant compliance, and the need to renew or replace the facility by September 2020.
- The effect of the June share issuance and future financing on share dilution; also review outstanding options, RSUs and warrants.
- Customer and supplier concentration, inventory commitments and potential obsolescence, given manufacturing lead times and product-cycle risks.
- Final SensiML acquisition valuations and the assumptions used for acquired intangible assets and goodwill.