QuickLogic Corporation — Q3 2018 Form 10-Q
Reporting period: Fiscal quarter and nine months ended September 30, 2018; comparative periods ended October 1, 2017. Unaudited results. QuickLogic develops low-power semiconductor, embedded software and IP solutions for mobile, sensor-processing and other applications.
Financial performance
| Metric | Q3 2018 | Q3 2017 | Nine months 2018 | Nine months 2017 |
|---|---|---|---|---|
| Revenue | $3.510m | $2.972m | $9.396m | $9.168m |
| Gross profit / margin | $1.743m / 50% | $1.266m / 43% | $4.662m / 50% | $4.019m / 44% |
| Operating expenses | $4.970m | $4.721m | $15.206m | $14.495m |
| Operating loss | $(3.227)m | $(3.455)m | $(10.544)m | $(10.476)m |
| Net loss | $(3.260)m | $(3.550)m | $(10.714)m | $(10.722)m |
| Loss per share, diluted | $(0.03) | $(0.04) | $(0.12) | $(0.14) |
- Q3 revenue rose 18% year over year; nine-month revenue rose 2%. Q3 growth came mainly from mature products, up 33%, while new-product revenue increased 3%. For the nine months, new-product revenue fell 10%, partly offset by mature-product growth of 16%.
- Gross margin improved in both comparisons, primarily due to mature-product sales and favorable product mix. Previously reserved inventory sold was $77,000 in Q3 and $180,000 for the nine months of 2018.
- Q3 net loss narrowed by $290,000 year over year; the nine-month net loss was nearly unchanged. Operating expenses increased in both periods, including R&D investment in eFPGA and QuickAI development.
Cash flow, liquidity and debt
- Cash and cash equivalents were $24.219m at September 30, 2018, versus $16.527m at December 31, 2017. Current assets were $30.622m and current liabilities $12.792m.
- For the first nine months, operating cash use was $8.829m, compared with $10.831m in 2017; investing cash use was $112,000, mainly capital expenditures. Financing provided $16.633m. Cash increased $7.692m to $24.219m.
- At quarter-end, revolving credit debt was $9.0m and capital lease obligations were $502,000. The Heritage Bank facility matures September 28, 2020, bears variable interest at the WSJ rate plus 0.50%, and had a stated rate of 5.75% at quarter-end. The company reported compliance with its financial covenants.
- QuickLogic raised approximately $13.9m net in a May 2018 offering of 13.5m shares and warrants for up to 5.4m additional shares. Common shares outstanding increased to 94.922m at quarter-end from 80.536m at year-end 2017.
- Management stated that cash, expected sales, the credit facility and potential access to public capital markets should fund operations and capital expenditures for the next 12 months. It cautioned that this depends on sales from new products and access to acceptable financing; no assurance was given. Remaining-2018 capital expenditures were projected at approximately $53,000.
Outlook, risks and unusual items
- Management is focused on sensor-processing solutions, EOS platforms, eFPGA IP and QuickAI, and expects growth to depend on converting design opportunities and new offerings into sales. No specific quarterly revenue or earnings guidance is provided.
- Management says mature-product revenue may fluctuate. It also notes that higher-volume mobile opportunities may carry lower margins and that shorter product life cycles could increase inventory-obsolescence risk.
- Revenue and receivables are concentrated: Distributor A represented 29% of Q3 revenue and 43% of receivables at quarter-end. Customer G represented 17% of Q3 revenue. The company also relies on limited or single-source manufacturers and suppliers, with lead times that can constrain its response to demand changes.
- Other commitments included $1.182m of operating leases, $25,000 of wafer purchases and $1.839m of other purchase obligations. The filing describes potential ordinary-course legal claims, including IP matters, but does not identify a specific material case or quantify a loss.
- The filing reports effective disclosure controls and no material change in internal control over financial reporting during the quarter. Adoption of the new revenue standard had no significant impact and required no opening retained-earnings adjustment.
Investor verification points
- Track whether new-product and eFPGA opportunities convert into sustained revenue, and whether gross-margin improvement persists without reserved-inventory sales.
- Review cash burn, the Heritage Bank facility’s cash and remaining-liquidity covenants, and the company’s ability to maintain compliance and refinance or replace the facility before its 2020 maturity.
- Assess dilution from the May offering and potential exercise of warrants for up to 5.4m shares, alongside further capital needs.
- Monitor distributor, customer and supplier concentration, inventory exposure, and the impact of product mix and mature-product demand.
- Confirm the amounts and timing of offering proceeds and financing cash flows against the detailed statements and related disclosures; the filing gives different presentations of these proceeds.