QuickLogic Corporation — FY2019 Form 10-K
Reporting period: Fiscal year ended December 29, 2019; filed March 13, 2020. The filing also reports quarterly results, including the quarter ended December 29, 2019. Amounts below are U.S. dollars; financial figures are in millions unless stated otherwise.
Business context
QuickLogic is a fabless semiconductor and software company focused on low-power SoCs, programmable logic and embedded FPGA (eFPGA) IP, and AI software for voice, sensor-processing and IoT applications. Its wholly owned SensiML subsidiary provides sensor-algorithm development software. The company relies on third parties for fabrication, assembly and testing and sells through distributors as well as directly to customers.
Financial performance and liquidity
| Metric | FY2019 | FY2018 |
|---|---|---|
| Revenue | $10.310 | $12.629 |
| Gross profit / margin | $5.905 / 57% | $6.334 / 50% |
| Operating expenses | $21.268 | $19.930 |
| Operating loss | $(15.363) | $(13.596) |
| Net loss | $(15.444) | $(13.779) |
| Net loss per share, basic and diluted | $(2.02) | $(2.16) |
| Cash used in operating activities | $(11.594) | $(12.638) |
- New-product revenue declined 46% to $3.123 million; mature-product revenue increased 4% to $7.187 million. New products represented 30% of revenue, versus 45% in 2018.
- R&D expense increased 24% to $12.350 million, partly reflecting SensiML and a new SoC software team. SG&A declined 11% to $8.918 million.
- Gross margin improved to 57% from 50%, mainly due to product and customer mix and SensiML SaaS revenue; gross profit dollars nevertheless fell 7% as revenue declined.
- At year-end, cash and cash equivalents were $21.448 million, restricted cash was $0.100 million, working capital was $10.366 million and total assets were $33.404 million. Cash and cash equivalents decreased by $4.915 million during the year.
- The company had $15.0 million drawn on its revolving credit facility at year-end, bearing 5.5% interest, plus $0.471 million of finance-lease liabilities. Long-term lease liabilities were $1.583 million. The credit agreement requires at least $3 million of unrestricted cash at Heritage Bank; the company reported covenant compliance.
- In January 2020, QuickLogic repaid $12 million of the revolving balance. This reduced debt after year-end; the filing does not state the remaining balance after those repayments.
FY2019 Q4: Revenue was $2.871 million, gross profit was $1.863 million (about 64.9% margin), operating loss was $2.928 million and net loss was $3.063 million. In Q4 FY2018, revenue was $3.233 million, gross profit was $1.672 million and net loss was $3.065 million.
Material changes and unusual items
- QuickLogic acquired SensiML on January 3, 2019, issuing company shares valued at approximately $0.903 million. SensiML contributed $0.126 million of FY2019 revenue; acquired-intangible amortization was $0.148 million.
- The company raised approximately $8.0 million net through a June 2019 common-stock offering. It also effected a 1-for-14 reverse stock split on December 23, 2019; historical share and per-share figures in the filing are adjusted for the split.
- Operating cash outflow remained substantial despite improving from 2018. FY2019 financing cash flow was $7.6 million, primarily reflecting the stock offering; investing cash outflow was $0.921 million.
- At year-end, the company recorded $2.4 million of right-of-use assets and $2.3 million of lease liabilities following lease-accounting adoption and new office leases.
Outlook, risks and contingencies
- Management expected FY2020 revenue growth from EOS S3, SensiML AI SaaS and eFPGA licensing, but provided no quantified revenue, earnings or cash-flow guidance. The filing warns that profitability depends on growth in new-product revenue while the company continues investing in development and sales.
- QuickLogic reported a history of losses and expected continued losses. Management said existing cash and available credit were expected to fund operations and capital expenditures for the next 12 months, while warning that additional financing might be needed and may not be available on acceptable terms.
- On January 24, 2020, the board approved a restructuring expected to reduce the global workforce by about 33%. The company estimated $0.5–$0.6 million of restructuring expense and approximately $0.5 million of cash costs, mostly in Q1 FY2020.
- Key risks include customer and distributor concentration, limited demand visibility and long design-to-volume cycles, dependence on single-source manufacturers, inventory forecasting and obsolescence, competition and pricing pressure, and uncertainty in developing eFPGA and endpoint-AI markets.
- China-related revenue, trade tariffs, international operations and the then-emerging COVID-19 outbreak were cited as potential risks. FY2019 revenue from China was $1.1 million (11%); two customers represented 13% and 10% of revenue, while one distributor represented 40%.
- The company reported no material pending legal proceedings. It disclosed ordinary-course litigation risks and $2.1 million of unrecognized tax benefits; it had not determined whether ownership-change limitations could restrict use of tax attributes.
- The independent auditor gave an unqualified opinion on the financial statements and internal control over financial reporting; management also assessed those controls as effective at year-end.
Important facts for investors to verify
- Whether FY2020 growth in EOS S3, SensiML subscriptions and eFPGA licensing materializes, and whether design opportunities convert to recurring or volume revenue.
- The company’s post-January 2020 credit-facility balance, liquidity runway, covenant status and ability to renew or replace the facility before its September 2021 maturity.
- Actual savings, implementation costs and operational effects of the announced 33% workforce reduction.
- Progress in reducing reliance on major customers and distributors, and trends in new-product revenue, gross margin and operating cash burn.
- Any manufacturing-supply disruption, excess inventory, customer program cancellation, or effects from tariffs, China-market conditions and COVID-19-related disruption.