QuickLogic Corporation — Q2 2013 Form 10-Q
Business and period: QuickLogic develops fabless, low-power programmable semiconductor solutions, including customer-specific standard products (CSSPs), FPGAs, and related software. This unaudited filing covers the three and six months ended June 30, 2013; comparisons are to the periods ended July 1, 2012.
Financial results
| Metric | Q2 2013 | Q2 2012 | Six months 2013 | Six months 2012 |
|---|---|---|---|---|
| Revenue | $5.126 million | $4.071 million | $8.143 million | $8.201 million |
| Gross profit / margin | $1.939 million / 37.8% | $2.045 million / 50.2% | $2.970 million / 36.5% | $3.804 million / 46.4% |
| Operating loss | $3.020 million | $3.156 million | $6.534 million | $6.896 million |
| Net loss | $3.241 million | $3.236 million | $6.825 million | $6.957 million |
| Net loss per share, diluted | $0.07 | $0.08 | $0.15 | $0.18 |
| Operating cash used | Not separately stated | Not separately stated | $5.275 million | $5.052 million |
Q2 revenue rose 26% year over year and 70% sequentially, primarily on initial ArcticLink III shipments for a tier-one tablet customer. New-product revenue increased 80% year over year to $3.094 million; mature-product revenue declined 14% to $2.032 million. For the first half, revenue was down 1% as new-product growth was largely offset by mature-product declines.
Gross margin contracted substantially, which management attributed mainly to the mix of customers and products shipped. Operating expenses for the first half fell 11% to $9.504 million, including lower R&D costs, but remained above gross profit. Q2 included $206,000 of restructuring costs; first-half restructuring charges totaled $213,000. Q2 tax expense was $330,000, including a $273,000 charge related to the TowerJazz investment’s historical unrealized gains.
Financial position and liquidity
- At June 30, 2013, cash and cash equivalents were $17.761 million, down from $22.578 million at December 30, 2012. Total assets were $26.758 million; stockholders’ equity was $21.553 million.
- Cash used in operations was $5.275 million for the first half. Investing activities provided $182,000, including proceeds from sale of TowerJazz shares; financing activities provided $276,000. Cash declined by $4.817 million overall.
- Interest-bearing debt consisted of $305,000 of capital lease obligations. No borrowings were outstanding on the $6.0 million revolving credit facility, available through June 27, 2014. The company reported compliance with its loan covenants.
- Management expected existing resources to fund operations and capital expenditures for at least the next 12 months. It projected approximately $1.4 million of capital expenditures for the remainder of fiscal 2013.
- Contractual obligations and commercial commitments totaled $8.973 million, including $4.529 million of wafer purchase commitments and $1.872 million of other purchase commitments, primarily due within one year.
Outlook, risks, and unusual items
- Management emphasized growth from CSSPs and new products, including greater focus on Catalog CSSPs, while noting that high-volume mobile opportunities generally carry lower margins and can pressure gross margin.
- Samsung accounted for 46% of Q2 revenue and 50% of receivables at quarter-end. The filing identifies dependence on Samsung and potential reductions in its orders as a material risk.
- QuickLogic relies on limited or single-source manufacturers and suppliers; constrained capacity, delays, quality issues, or supplier disruptions could affect shipments and costs. Wafer purchase commitments increased to $4.529 million from $621,000 at year-end.
- The company expects mature-product revenue to decline over time. Mobile products’ shorter life cycles may increase inventory-obsolescence risk; inventory was $3.603 million, including $249,000 of first-half inventory write-downs.
- Management cited semiconductor cyclicality, design opportunities converting to revenue, product acceptance, customer product life cycles, manufacturing access, and working-capital changes as factors affecting liquidity. It cautioned that future conditions could require additional capital.
- The remaining TowerJazz shares were sold in Q2 for $265,000, generating a reported gain of $181,000. The filing describes ordinary-course litigation risk, including possible costly intellectual-property disputes, but provides no specific pending-case amounts.
Important facts for investors to verify
- Whether Samsung shipments and the ArcticLink III tablet program continue, given the substantial revenue and receivables concentration.
- Whether new-product growth can offset mature-product declines while stabilizing gross margins.
- Cash burn, working-capital needs, and the ability to meet wafer and other purchase commitments while maintaining the credit facility’s covenants.
- Inventory quality and potential obsolescence, particularly as mobile-product volumes and product life cycles evolve.
- Any changes in supplier capacity, customer demand, restructuring effects, or litigation and other contingencies.