QuickLogic Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended April 2, 2023; comparison is the three months ended April 3, 2022. QuickLogic develops low-power semiconductor platforms, eFPGA intellectual property and software for AI, voice and sensor processing. Figures below are in U.S. dollars; financial statement amounts are in thousands unless stated otherwise.
Financial results and liquidity
| Metric | Q1 2023 | Prior-year quarter | Change |
|---|---|---|---|
| Revenue | $4.133 million | $4.096 million | +1% |
| Gross profit / margin | $2.390 million / 58% | $2.461 million / 60% | Gross profit down 3%; margin down 2 percentage points |
| Operating expenses | $3.490 million | $3.470 million | +1% |
| Operating loss | $1.100 million | $1.009 million | Loss increased |
| Net loss / diluted loss per share | $1.228 million / $0.09 | $1.164 million / $0.10 | Net loss increased about 5% |
| Net cash used in operations | $0.262 million | $0.700 million | Cash use decreased |
Cash, cash equivalents and restricted cash were $20.9 million at quarter-end, including a $15.0 million advance under the revolving credit facility. Current assets were $29.9 million and current liabilities $20.3 million. The company also had $1.2 million of finance-lease debt; total lease liabilities were $1.6 million. The revolving facility carried an 8.5% rate, matures December 31, 2024, is secured by substantially all tangible and intangible assets, and was covenant-compliant at quarter-end. The company raised approximately $2.3 million net from a registered direct offering of 450,000 shares at $5.14 per share.
Investing activities used $0.188 million, mainly for capitalized internal-use software. Financing activities provided $2.151 million, primarily from the stock offering, partly offset by finance-lease payments. The $15.0 million credit-line draw and repayment netted to zero in the quarter.
Material changes versus the prior-year quarter
- New-product revenue decreased 11% to $3.055 million, while mature-product revenue increased 67% to $1.078 million. Within new products, hardware revenue fell 91% to $0.162 million; eFPGA IP and professional services rose 78% to $2.810 million, including about $2.6 million of services and $0.2 million of IP license revenue.
- Gross margin declined from 60% to 58%. Management attributed higher cost of revenue in part to eFPGA project tooling costs.
- Research and development expense rose 22% to $1.629 million, including higher stock-based compensation and salary costs. Selling, general and administrative expense fell 13% to $1.861 million, primarily with lower consulting and salary expenses.
- Stock-based compensation increased to $0.715 million from $0.383 million.
- U.S. revenue represented 80% of total revenue, compared with 59% a year earlier. One customer accounted for 54% of quarterly revenue, creating significant customer concentration.
Outlook, risks and unusual items
- Management expects losses to continue through at least fiscal 2023 while it invests in new products, applications and technologies. It expects growth contributions from EOS S3, SensiML AI SaaS and eFPGA IP licensing, but gives no quantified revenue or earnings guidance.
- Management believes existing cash, operating revenue and available revolving-facility resources will fund operations and capital expenditures for the next 12 months. Longer-term liquidity depends partly on new-product sales, access to public capital markets, and renewal or replacement of the facility before its December 2024 expiration; the company gives no assurance that additional capital will be available on acceptable terms.
- Key business risks include converting design opportunities to sales, semiconductor-market cyclicality, product-life-cycle and end-of-life fluctuations, manufacturing access and costs, inventory obsolescence, customer concentration, and maintaining lender covenant compliance.
- On January 20, 2023, the company detected ransomware affecting a limited number of IT systems, including systems containing employee personal information. It restored critical operational data and continued operations; its investigation remained ongoing. Management said it did not believe the incident had or would have a material business or financial impact.
- As of April 2, purchase obligations for other goods and services totaled $1.3 million due within 12 months. Estimated contingent commitments were $3.8 million due within 12 months and $8.7 million due in two to three years; timing and probability depend on future supplier deliveries.
- Subsequent event: On April 28, 2023, approximately $1.16 million of a customer receivable was converted to a note due April 28, 2024, bearing 3% interest compounded monthly, increasing to 10% upon default.
- No legal proceedings were reported, and the filing states there were no material changes to the risk factors in the 2022 Form 10-K.
Important facts for investors to verify
- Whether eFPGA services and licensing growth can offset the sharp decline in hardware revenue, and whether services-heavy revenue can support margins.
- The timing and collectability of the $1.16 million customer note, and the status of the ongoing ransomware investigation and any associated costs or notifications.
- Customer and cash concentration: one customer generated 54% of revenue, and most cash was held at Heritage Bank.
- Revolving-facility availability, interest costs, covenant headroom and refinancing plans before the December 2024 maturity.
- Whether the $3.8 million near-term and $8.7 million longer-dated contingent commitments become payable, and the effect of continuing losses on cash needs.