QuickLogic Corporation — Q3 2013 Form 10-Q
Business and period: QuickLogic develops fabless, low-power programmable semiconductor solutions, including customer-specific standard products (CSSPs) and FPGAs. This unaudited filing covers the three and nine months ended September 29, 2013; comparisons are to the corresponding 2012 periods.
Financial performance
| Metric | Q3 2013 | Q3 2012 | Nine months 2013 | Nine months 2012 |
|---|---|---|---|---|
| Revenue | $9.066 million | $3.657 million | $17.209 million | $11.858 million |
| Gross profit | $3.029 million | $1.741 million | $5.999 million | $5.545 million |
| Gross margin | 33.4% | 47.6% | 34.9% | 46.8% |
| Operating loss | $2.198 million | $2.782 million | $8.732 million | $9.678 million |
| Net loss | $2.262 million | $2.798 million | $9.087 million | $9.755 million |
| Basic and diluted loss per share | $0.05 | $0.06 | $0.20 | $0.24 |
- Q3 revenue rose 148% year over year, primarily on ArcticLink III shipments to Samsung. New-product revenue was $7.139 million, versus $1.558 million; mature-product revenue fell 8% to $1.927 million.
- For the first nine months, revenue increased 45%; new-product revenue grew 127%, while mature-product revenue declined 13%.
- Higher sales increased gross profit, but margins fell materially. Management attributed the margin pressure to Samsung/tablet sales mix and intense pricing competition; Q3 costs also included a $130,000 increase in inventory reserve and $231,000 in increased royalties.
- Nine-month operating expenses were $14.731 million, down 3% year over year, including lower R&D costs partly offset by higher SG&A and $181,000 in net restructuring charges.
Cash, liquidity and obligations
- At September 29, cash and cash equivalents were $14.871 million, down from $22.578 million at December 30, 2012. Current assets were $23.389 million and current liabilities $6.887 million.
- Operating activities used $7.941 million in the first nine months, compared with $6.620 million used in the prior-year period. Investing activities used $942,000; financing activities provided $1.176 million. Ending cash was $14.871 million.
- QuickLogic had $1.0 million outstanding on its $6.0 million revolving facility, with $5.0 million available; the facility expires June 27, 2014. The outstanding borrowing carried a 3.75% rate. Capital lease obligations were $194,000. The company reported compliance with its financial covenants.
- Management stated that cash and available credit should fund operations and capital expenditures for the next 12 months. It also cited longer-term dependence on revenue growth, margin improvement and potential access to equity markets.
- Firm wafer purchase commitments were $8.486 million, primarily due within one year; other purchase commitments were $609,000. Total contractual obligations and commercial commitments were $12.339 million.
Management outlook, risks and notable items
- No specific revenue or earnings guidance was provided. Management expects growth to depend on new products and CSSPs, including converting design opportunities into sales; mature-product revenue is expected to decline over time.
- Samsung represented 68% of Q3 revenue and 49% of nine-month revenue. Management warned that reduced orders or loss of the relationship could materially harm results.
- The company relies on a limited number of suppliers, in some cases a single source for particular products. Capacity, delivery, cost or quality disruptions could affect supply and results.
- Other disclosed risks include price competition and lower CSSP margins at higher volumes, inventory obsolescence, foreign-exchange exposure, and uncertainty in realizing U.S. deferred tax assets. A 10% currency-rate move was estimated to change nine-month operating expenses by approximately $303,000.
- QuickLogic sold its remaining TowerJazz shares in Q2 for $265,000 and recorded a $181,000 gain. It implemented an engineering restructuring plan with $213,000 of initial severance charges; $181,000 was paid and a $32,000 accrual release was recorded in Q3.
- The filing describes possible ordinary-course legal claims, including intellectual-property and collection matters, but provides no specific pending case or quantified exposure in the supplied text.
Investor facts to verify
- Whether Samsung demand and the ArcticLink III program continue, and how customer concentration changes.
- Whether revenue growth can translate into improved gross margins given the reported product mix and pricing pressure.
- Cash burn, borrowing availability, covenant compliance and the ability to meet the $8.486 million wafer commitments.
- Inventory quality and reserve assumptions, especially as product life cycles shorten.
- Supplier capacity and any material developments in litigation or other contingencies.