QuickLogic Corporation — Q1 2012 Form 10-Q
Reporting period: Three months ended April 1, 2012; compared with the three months ended April 3, 2011. QuickLogic is a fabless semiconductor company developing programmable solutions and customer-specific standard products (CSSPs) for mobile, consumer, and industrial markets. Financial statement amounts below are in millions of dollars except per-share data.
Key financial results
| Metric | Q1 2012 | Q1 2011 |
|---|---|---|
| Revenue | $4.13 | $5.55 |
| Gross profit / margin | $1.76 / 42.6% | $3.61 / 65.0% |
| Operating expenses | $5.50 | $4.41 |
| Operating loss | $3.74 | $0.80 |
| Net loss | $3.72 | $0.88 |
| Loss per share, basic and diluted | $0.10 | $0.02 |
| Cash used in operating activities | $2.83 | $0.38 |
| Capital expenditures | $0.07 | $0.31 |
Financial position and liquidity
- At April 1, 2012, cash and cash equivalents were $17.22 million, down from $20.20 million at January 1. The company also held TowerJazz shares valued at approximately $0.57 million.
- Total current assets were $23.62 million and current liabilities were $4.24 million. Total liabilities were $4.88 million; stockholders’ equity was $21.78 million.
- Debt consisted of $0.92 million in capital lease obligations, including $0.41 million current. There were no borrowings under the $6.0 million revolving credit line; the facility was scheduled to expire June 28, 2012. The company reported compliance with its loan covenants.
- Management stated that existing resources were expected to fund operations, capital expenditures, and working capital for at least 12 months. This is an expectation, not a guarantee; the company noted that additional capital could be needed depending on future conditions.
- Cash used in operating activities increased year over year to $2.83 million. The quarter-end cash decline was $2.98 million. Management projected approximately $0.86 million of capital expenditures for the remainder of fiscal 2012.
Changes versus the prior-year quarter
- Revenue fell 26% to $4.13 million. New-product revenue rose 34% to $1.64 million, while mature-product revenue declined 42% to $2.49 million.
- New-product shipments included ArcticLink II VX to a smartphone customer. Management attributed weaker mature-product sales mainly to low bookings in aerospace, test, and instrumentation markets and expected mature-product revenue to continue declining over time.
- Gross margin fell to 42.6% from 65.0%. Management cited lower revenue, higher inventory reserves, and higher unabsorbed overhead. Inventory write-downs were $0.33 million versus $0.12 million.
- R&D expense increased 55% to $2.80 million, primarily due to higher third-party chip-design costs. SG&A increased 3% to $2.70 million.
- Operating cash use rose from $0.38 million to $2.83 million, while financing activities provided $1.24 million in Q1 2011 but used $0.08 million in Q1 2012.
Outlook, risks, and other notable items
- Growth depends on converting design opportunities into revenue and increasing sales of new products and CSSPs. Management said CSSPs generally carry lower margins than FPGA products, and large-volume opportunities may further pressure gross margin through price competition.
- Supplier and manufacturing exposure is material: the company depends on a limited number of contract manufacturers and suppliers, often with single-source arrangements. Wafer purchase commitments were $0.85 million, and other purchase obligations were $2.19 million, primarily due within 12 months.
- Customer and distributor concentration was significant: one distributor represented 32% of quarterly revenue, another 18%, and another 16%; one customer represented 20%. Several distributors also each accounted for at least 10% of receivables.
- Inventory obsolescence risk may increase as the company pursues mobile products with shorter product life cycles. Management identified inventory valuation, revenue recognition, investment valuation, and other estimates as areas involving judgment.
- The TowerJazz investment is subject to equity-market risk; its unrealized gain was reflected in other comprehensive income. Foreign-currency exposure was not hedged; management estimated a 10% exchange-rate change would have changed Q1 operating expenses by approximately $83,000.
- No litigation was reported. Management concluded disclosure controls were effective as of April 1, 2012, and reported no material change in internal control over financial reporting during the quarter.
Investor verification points
- Whether new-product and CSSP design wins convert to sustained revenue quickly enough to offset continuing mature-product declines.
- Whether gross margin stabilizes after the quarter’s inventory charges and overhead under-absorption, and how future inventory write-downs may affect results.
- Cash burn, remaining liquidity, and renewal or replacement of the revolving credit facility due to expire June 28, 2012.
- Supplier capacity, wafer commitments, and the ability to manage inventory against uncertain demand and concentrated customers and distributors.
- Progress against the stated expectation of at least 12 months of liquidity and the approximately $0.86 million remaining-year capital expenditure estimate.