QuickLogic Corporation — Q3 2021 Form 10-Q
Reporting period: Fiscal quarter ended October 3, 2021. Dollar amounts below are in millions unless stated otherwise. Comparisons are with the quarter ended September 27, 2020, or the corresponding nine-month period.
Business context
QuickLogic develops low-power semiconductor platforms, eFPGA intellectual property, and embedded software for AI, voice, sensor processing, display, and IoT applications. Its SensiML subsidiary provides sensor-algorithm development software. The company reports one operating segment.
Financial performance
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $3.858 | $1.780 | $8.980 | $6.134 |
| Gross profit | $2.732 | $0.923 | $5.342 | $3.042 |
| Gross margin | 71% | 52% | 59% | 50% |
| Operating loss | $(1.261) | $(2.046) | $(5.931) | $(8.003) |
| Net loss | $(1.282) | $(2.065) | $(5.033) | $(8.209) |
| Net loss per share | $(0.11) | $(0.19) | $(0.44) | $(0.88) |
| Cash used in operations | Not stated separately | Not stated separately | $(3.053) | $(5.145) |
- Q3 revenue increased 117% year over year. New-product revenue was $2.758 million, up 332%, while mature-product revenue was $1.100 million, down 4%.
- Q3 included $1.0 million of IP licensing revenue from an agreement signed in August. The filing says remaining performance obligations were expected to be delivered by December 2021.
- For the first nine months, new-product revenue rose 162% to $5.095 million; mature-product revenue declined 7% to $3.885 million. IP licensing revenue for the period was $1.150 million.
- Q3 gross margin improved principally because of higher revenue, the IP license with minimal associated cost, and product mix. Nine-month gross profit also benefited from revenue growth and licensing, partly offset by cost variances and inventory write-downs.
- Q3 operating expenses were $3.993 million, up 34% year over year; R&D rose 31% and SG&A rose 48%. Nine-month operating expenses were $11.273 million, up 2%; R&D was slightly lower and SG&A higher. No restructuring costs were recorded in 2021, versus $0.624 million in the prior-year nine-month period.
- Nine-month results included a $1.192 million gain from forgiveness of the PPP loan. This nonrecurring item contributed to the reduction in reported net loss.
Financial position and liquidity
- At October 3, 2021, cash, cash equivalents, and restricted cash were $19.581 million, versus $22.748 million at January 3, 2021. The balance included $0.100 million of restricted cash.
- Current assets were $24.932 million and current liabilities were $18.864 million, implying working capital of approximately $6.068 million.
- The company had $15.0 million drawn on its revolving credit facility at 3.75%; it also reported $0.836 million of finance-lease obligations. Total lease liabilities, including operating leases, were $1.796 million.
- Operating cash use was $3.053 million for the nine months. Investing cash use was $0.580 million, principally capitalized internal-use software and capital expenditures. Financing provided $0.466 million, including approximately $1.0 million net proceeds from September share placements.
- Stockholders’ equity declined to $9.606 million from $12.487 million at fiscal year-end. Shares issued and outstanding were 11.790 million at October 3; 11,795,647 shares were reported outstanding on November 11.
- Management said existing cash and available resources under the credit facility were expected to fund operations and capital expenditures for the next 12 months. The company was in compliance with loan covenants at quarter-end. A November 16, 2021 amendment subsequently extended the facility’s maturity to December 31, 2023.
Outlook, risks, and unusual matters
- Management expected revenue growth to be driven by new silicon products, eFPGA IP, and SensiML software, and cited expected growth from EOS S3, SensiML AI SaaS, and eFPGA licensing in fiscal 2021. No numerical revenue or earnings guidance was provided.
- The company had incurred recurring losses and expected losses to continue through at least fiscal 2021 while investing in product development. It cautioned that future cash generation and access to additional capital were uncertain.
- COVID-19 had caused supply-chain, customer-deployment, and logistics disruptions. Management said alternative arrangements had prevented a material impact on its ability to fulfill demand to date, but future effects remained uncertain.
- QuickLogic relies on a limited number of manufacturers and suppliers, often single sources, and forecasts wafer starts months ahead. Wafer and finished-goods commitments were $0.632 million; other purchase obligations were approximately $1.0 million due within 12 months. Longer lead times, constrained capacity, inventory mismatch, and obsolescence could affect results.
- Revenue and receivables were concentrated among certain customers and distributors. One customer represented 25% of Q3 revenue; one distributor represented 41% of accounts receivable at quarter-end.
- India’s tax authority disputed the company’s transfer-pricing rate for assessment year 2017–18, with possible implications for later years. The company appealed; the potential effect, if any, was expected to affect foreign tax provision and amounts owed. The filing did not quantify a clear exposure.
- The company recorded a $125,000 tax provision related to a potential one-time distribution from its India subsidiary. U.S. and certain foreign deferred tax assets remained subject to a full valuation allowance.
Most important facts for investors to verify
- Whether Q3’s $1.0 million IP license revenue recurs, and whether the remaining delivery obligations were completed as expected.
- Revenue growth and gross-margin sustainability excluding the unusually high-margin licensing contribution; progress converting design opportunities and new products into recurring sales.
- Cash runway, operating cash burn, credit-facility availability and covenants, and the terms and status of the November 2021 maturity extension.
- Customer, distributor, and supplier concentration, including the 41% receivables exposure and the company’s ability to secure manufacturing capacity.
- Outcome and financial effect, if any, of the India transfer-pricing appeal and related tax matters.