QuickLogic Corporation — Q3 2016 Form 10-Q
Reporting period: Third fiscal quarter ended October 2, 2016; year-to-date covers the nine months ended October 2, 2016. The company designs and sells fabless semiconductor solutions, including sensor-processing, display and visual-enhancement products, and FPGAs.
Financial results
| Metric | Q3 2016 | Q3 2015 | Nine months 2016 | Nine months 2015 |
|---|---|---|---|---|
| Revenue | $2.809 million | $4.194 million | $8.476 million | $15.326 million |
| Gross profit / margin | $0.891 million / 32% | $1.242 million / 30% | $2.823 million / 33% | $6.264 million / 41% |
| Operating expenses | $5.459 million | $6.269 million | $17.873 million | $19.058 million |
| Operating loss | $(4.568) million | $(5.027) million | $(15.050) million | $(12.794) million |
| Net loss | $(4.623) million | $(5.086) million | $(15.290) million | $(13.002) million |
| Loss per share, diluted | $(0.07) | $(0.09) | $(0.24) | $(0.23) |
Q3 revenue was up 3% sequentially, but down 33% year over year. New-product revenue fell 53% year over year to $1.339 million; mature-product revenue rose 10% to $1.470 million. For the nine months, revenue declined 45%, with new products down 60% and mature products down 17%.
Cash and cash equivalents were $17.761 million at October 2, 2016, versus $19.136 million at January 3, 2016. Nine-month operating cash use was $11.694 million, investing cash use was $1.562 million, and financing provided $11.881 million. Financing included approximately $8.8 million net proceeds from a March stock offering and $3.0 million of line-of-credit borrowings. The company reported $5.0 million drawn on its revolving credit facility and $1.0 million available; capital lease obligations were $0.230 million. Total liabilities were $8.986 million and stockholders’ equity was $15.641 million.
Changes and management commentary
- Q3 gross margin improved to 32% from 30%, mainly because mature products made up a larger share of revenue. Year-to-date gross margin declined to 33% from 41%, primarily reflecting lower sales volume and product mix.
- Management attributed much of the new-product decline to weaker ArcticLink III display-bridge shipments and lower smart-connectivity shipments. It said tablet-related display-bridge revenue may decline over time and mature-product revenue will fluctuate.
- Operating expenses decreased year over year, with R&D reductions largely reflecting strategic realignment measures implemented in Q2 2016. The company continued to report substantial operating losses.
- Samsung represented 39% of Q3 revenue and 35% of nine-month revenue. Samsung accounted for 83% of Q3 new-product revenue.
Outlook, liquidity and risks
Management expected losses to continue through at least fiscal 2016 and said existing cash, available credit and March 2016 equity proceeds should fund operations and capital expenditures for the next 12 months. This is an assessment, not a guarantee; management cautioned that additional capital may not be available on acceptable terms and that failure to grow new-product sales or raise capital could impair operations and compliance with lender covenants. No specific revenue or earnings guidance was provided.
The company stated it was in compliance with its credit covenants at quarter-end. The facility is secured by substantially all assets and matures September 25, 2017. Covenant requirements include minimum tangible net worth, cash held at the bank or affiliates, and a quick-assets ratio. Other exposures include customer concentration, reliance on limited-source suppliers and advance wafer commitments of $2.665 million, inventory-obsolescence risk, and $1.127 million of other purchase commitments. The filing describes ordinary-course litigation risk but provides no specific material case or quantified contingency.
Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. It also reported a $0.236 million inventory write-down and a $0.351 million equipment write-off in the first nine months.
Important facts for investors to verify
- Whether new sensor-processing and other new-product opportunities convert into revenue, particularly as tablet-related demand changes.
- Revenue and cash-flow dependence on Samsung and other major customers, and the potential effect of customer or distributor concentration.
- Cash burn, remaining borrowing availability, covenant headroom and the company’s ability to fund operations beyond management’s stated 12-month outlook.
- Inventory quality, future write-downs, and the effect of wafer commitments and supplier concentration on cash needs and product availability.
- The potential for further equity financing and dilution; common shares outstanding increased to approximately 67.789 million from 56.904 million at January 3, 2016.