QuickLogic Corporation — Q3 2012 Form 10-Q
Reporting period: Three and nine months ended September 30, 2012; comparative periods ended October 2, 2011. QuickLogic designs and markets low-power programmable semiconductor products, including customer-specific standard products (CSSPs), FPGAs, and related software and hardware.
Financial performance
| Metric | Q3 2012 | Q3 2011 | Nine months 2012 | Nine months 2011 |
|---|---|---|---|---|
| Revenue | $3.657 million | $5.339 million | $11.858 million | $16.623 million |
| Gross profit / margin | $1.741 million / 47.6% | $3.056 million / 57.2% | $5.545 million / 46.8% | $10.435 million / 62.8% |
| Operating loss | $2.782 million | $1.482 million | $9.678 million | $4.368 million |
| Net loss | $2.798 million | $1.546 million | $9.755 million | $4.484 million |
| Net loss per share | $0.06 | $0.04 | $0.24 | $0.12 |
- Q3 revenue fell 32% year over year. New-product revenue rose 27% to $1.558 million, while mature-product revenue declined 49% to $2.099 million. For the first nine months, revenue declined 29%; new products grew 35%, but mature products fell 47%.
- Q3 gross margin contracted to 47.6%, primarily due to lower mature-product revenue and higher unabsorbed overhead. Operating expenses were $4.523 million in Q3, broadly flat year over year, with lower R&D expense offset by higher SG&A.
- Cash used in operating activities was $6.620 million for the first nine months, versus $1.128 million used in the prior-year period. Capital expenditures were $814,000; operating cash flow less capital expenditures was negative $7.434 million.
- Cash and equivalents were $24.948 million at September 30, up from $20.203 million at January 1. Current assets were $30.130 million and current liabilities $3.756 million. Total liabilities were $4.207 million, including $722,000 of capital lease obligations.
Liquidity, capital and material changes
- QuickLogic reported $24.9 million of cash, approximately $380,000 in TowerJazz shares, and a $6.0 million revolving credit facility available through June 28, 2013. It had no revolver borrowings and was in compliance with covenants at quarter-end.
- The company said existing cash resources should fund operations, capital expenditures and working capital for at least the next 12 months. It projected approximately $250,000 of capital expenditures for the remainder of fiscal 2012.
- In June, QuickLogic issued 5.122 million common shares and warrants for up to 2.305 million shares at $2.50 per unit, receiving $11.9 million net proceeds. The warrants are exercisable at $2.98 per share for five years. Shares outstanding increased from 38.636 million at January 1 to 44.291 million at September 30.
- Cash provided by financing activities was $12.179 million for the nine-month period, mainly from the equity offering and employee equity plans; cash increased by $4.745 million overall.
Outlook, risks and contingencies
- No specific revenue or earnings guidance was provided. Management said growth depends on converting design opportunities into sales and increasing revenue from CSSPs and newer platforms. It expects mature-product revenue to continue declining.
- Management noted that CSSPs generally carry lower gross margins than FPGA products, and competitive pricing on high-volume opportunities may further reduce margin percentages. Inventory obsolescence and write-downs remain a risk as product life cycles shorten; nine-month inventory write-downs were $428,000.
- Revenue and receivables are concentrated among certain distributors and customers. One distributor represented 28% of Q3 revenue; several other distributors or customers also exceeded 10%. The filing identifies these parties by letter rather than name.
- QuickLogic relies on a limited number of suppliers and, for some products, single sources for manufacturing and related services. Supply disruptions, constrained capacity, or demand changes could affect deliveries, costs and inventory levels.
- Outstanding contractual obligations and commercial commitments totaled $5.297 million, including operating leases, wafer purchases, other purchase commitments and capital leases. Wafer purchase commitments were $408,000; other purchase obligations were $1.822 million.
- The company disclosed ordinary-course legal matters, including potential intellectual-property and collection disputes, but did not provide a specific material case or quantified loss. It also noted foreign-exchange exposure and does not hedge it with derivatives.
Important facts for investors to verify
- Whether CSSP design opportunities convert into sustained revenue growth sufficient to offset continued mature-product declines.
- Whether cash burn, capital needs and contractual commitments remain consistent with management’s stated 12-month liquidity expectation.
- The durability of gross margins given product mix, pricing pressure, overhead absorption and inventory reserves.
- Customer and distributor concentration, supplier capacity and the potential effects of disruptions or changing demand.
- The potential dilution from outstanding warrants, equity awards and employee stock plans, and any developments in litigation or tax-asset realizability.