QuickLogic Corporation — FY2014 Form 10-K
Reporting period: Fiscal year ended December 28, 2014. The filing also reports unaudited fourth-quarter results. QuickLogic develops low-power customizable semiconductor products and software, primarily customer-specific standard products (CSSPs), for mobile and other markets.
Financial performance and liquidity
| Metric | FY2014 | FY2013 | Change |
|---|---|---|---|
| Revenue | $27.845 million | $26.072 million | Up 7% |
| Gross profit / margin | $11.049 million / 40% | $8.767 million / 34% | Margin up 6 percentage points |
| Operating expenses | $23.849 million | $20.558 million | Up 16% |
| Operating loss | $12.800 million | $11.791 million | Loss widened |
| Net loss | $13.079 million | $12.276 million | Loss widened |
| Net loss per share | $0.23 | $0.27 | Loss per share narrowed |
| Cash used in operations | $10.754 million | $9.056 million | Use increased |
- New-product revenue was $19.311 million, up 6%, and 69% of total revenue; mature-product revenue was $8.534 million, up 9%. Samsung shipments drove much of the new-product increase. Samsung represented 52% of annual revenue and 49% in Q4.
- Gross-profit improvement reflected customer and product mix, favorable purchase-price adjustments and standard-cost variances, and sales of previously reserved inventory. R&D expense increased $3.811 million to $12.186 million, principally from higher compensation, outside design services and purchased IP.
- At year-end, cash and cash equivalents were $30.050 million, working capital was $33.395 million, total assets were $41.139 million, and stockholders’ equity was $35.567 million. Cash declined $7.356 million during the year.
- The company had $1.0 million outstanding under its revolving credit facility, with $5.0 million of additional availability; the facility expires June 27, 2016. It also had $416,000 in capital software lease obligations. The company reported compliance with loan covenants.
- FY2014 investing cash use was $1.044 million; financing provided $4.442 million, primarily from employee equity-plan share issuances.
Fourth-quarter snapshot
Q4 revenue was $5.721 million, compared with $8.863 million in Q4 2013. Gross profit was $2.212 million (about 39% margin), versus $2.768 million (about 31%). Operating loss was $3.991 million and net loss was $4.142 million, compared with $3.059 million and $3.189 million, respectively, in the prior-year quarter.
Changes, outlook and risks
- Revenue rose 7% year over year, but the net loss widened as operating expenses—particularly R&D—increased. Gross margin improved from 34% to 40%.
- Management said growth depends on CSSPs and other new products generating enough revenue and gross profit to support continued investment and achieve profitability. It expects revenue from tablets and mature products to decline over time. No quantified revenue or earnings guidance is provided.
- Management believed cash, cash equivalents and available credit would fund operations and capital expenditures for the next 12 months. Longer-term needs depend on revenue, gross profit, product acceptance, inventory and development spending; additional financing may be required, with no assurance it will be available on acceptable terms.
- Key risks include customer concentration and uncertain orders, especially dependence on Samsung; short mobile-product lifecycles and pricing pressure; CSSP design wins failing to convert to sales; and reliance on single or limited-source foundries and other suppliers. Forecasting errors could cause shortages or excess and obsolete inventory.
- Potentially notable items include $603,000 of sales of previously reserved inventory benefiting FY2014 gross profit; a $66.6 million valuation allowance against U.S. deferred tax assets; and $552,000 of wafer purchase commitments at year-end, down from $10.8 million a year earlier. No material pending legal proceedings were reported. Auditors gave unqualified opinions on the financial statements and internal control over financial reporting.
Investor verification priorities
- Verify whether Samsung and other major customers sustain orders and whether the company reduces its revenue concentration.
- Track CSSP design wins converting to volume shipments, margins, and replacement revenue as tablet and mature-product sales decline.
- Assess whether cash burn, working-capital needs and available credit remain consistent with management’s stated 12-month liquidity expectation.
- Review inventory levels, reserves, purchase commitments and supplier capacity for signs of excess, obsolescence or supply disruption.
- Monitor R&D and other operating expenses against revenue growth and progress toward profitability; consider the potential effects of share issuance and equity compensation.