QuickLogic Corporation — FY2015 Form 10-K
Business context and reporting period. QuickLogic develops low-power customizable semiconductor and software solutions, including sensor-processing platforms, display bridges and FPGAs, primarily for mobile, wearable and IoT applications. This annual report covers the fiscal year ended January 3, 2016; quarterly figures below identify the quarter ended that date.
Financial performance and liquidity
| Metric | FY2015 | FY2014 |
|---|---|---|
| Revenue | $19.0 million | $27.8 million |
| Gross profit / margin | $7.5 million / 40% | $11.0 million / 40% |
| Operating expenses | $25.1 million | $23.8 million |
| Operating loss | $17.5 million | $12.8 million |
| Net loss / diluted loss per share | $17.8 million / $0.32 | $13.1 million / $0.23 |
| Cash used in operating activities | $11.8 million | $10.8 million |
- FY2015 revenue fell 32%. New-product revenue declined 38% to $12.0 million; mature-product revenue declined 19% to $6.9 million. New products represented 63% of total revenue.
- Gross margin held at 40%, despite lower sales and approximately $702,000 of price-reduction impact. Management attributed the stable margin partly to a greater mature-product mix and restructuring.
- Cash and cash equivalents were $19.1 million at year-end, down from $30.1 million. Working capital was $19.1 million; total assets were $28.5 million and stockholders’ equity was $20.3 million.
- Debt included $2.0 million drawn under the revolving credit line at 3.38% and $489,000 of capital software lease obligations. The company reported $4.0 million of remaining availability under its $6.0 million committed line.
- Fourth-quarter revenue was $3.6 million, gross profit $1.3 million, operating loss $4.7 million and net loss $4.8 million. Fourth-quarter FY2014 revenue was $5.7 million and net loss $4.1 million.
Material changes versus the prior year
- Lower shipments of ArcticLink III VX to Samsung and lower Eclipse II connectivity-product sales drove much of the new-product decline. ArcticLink III shipments were $8.3 million versus $15.0 million; Eclipse II revenue was $1.2 million versus $2.6 million.
- Samsung accounted for 43% of FY2015 revenue, compared with 52% in FY2014. Two customers together represented 56% of FY2015 revenue. Customer concentration remains material.
- Research and development expense increased 16% to $14.1 million, or 75% of revenue; SG&A declined 9% to $10.6 million. The resulting operating loss widened to $17.5 million.
- Cash used in operations increased to $11.8 million. Inventory declined by $2.1 million to $2.9 million, partly reflecting sales of previously purchased products.
Outlook, risks and unusual items
- Management expected net losses to continue through at least the fiscal year ending January 1, 2017. It stated that year-end cash, credit availability and proceeds from a March 2016 equity offering were expected to fund operations and capital expenditures for the next 12 months, while cautioning that future financing may not be available on acceptable terms.
- After year-end, the company priced an offering of 10.0 million new shares at $1.00 per share, expecting gross proceeds of $10.0 million and net proceeds of approximately $8.9 million, before any over-allotment exercise. Proceeds were intended for working capital and general corporate purposes. The offering would dilute existing shareholders.
- A February 2016 credit amendment revised financial covenants, including minimum cash of $6.0 million and specified tangible-net-worth and quick-asset ratio tests. The company reported compliance at fiscal year-end; subsequent compliance and covenant headroom are important given continuing losses.
- In June 2015, QuickLogic restructured and eliminated nine positions, approximately 9% of its workforce, recording $295,000 in charges. Its Canadian operations closed at year-end.
- A licensor claimed back royalties on ArcticLink III VX sales. QuickLogic disputed liability; mediation was being arranged. The company estimated possible loss of $25,000 to $250,000. It reported no material pending legal proceedings otherwise.
- Key risks include dependence on a few customers and single-source manufacturers, uncertain conversion of design wins to sales, demand forecasting and inventory-obsolescence exposure, price pressure and lower margins on mobile solutions, and the need for additional capital. Management anticipates declining revenue from tablets and mature products.
Important facts for investors to verify
- Whether the March 2016 offering closed as expected, the net proceeds received, and resulting share dilution.
- Current liquidity, operating cash burn and compliance headroom under amended bank covenants.
- Samsung and other major-customer demand, design-program shipments, and progress diversifying revenue.
- Conversion of sensor-processing design opportunities into recurring revenue at sufficient gross margins.
- Inventory exposure, wafer purchase commitments and the outcome of the disputed royalty claim.