QuickLogic Corporation — Q1 2016 Form 10-Q
Business context and reporting period: QuickLogic designs fabless semiconductor solutions, including sensor-processing, display and visual-enhancement, and connectivity products. The unaudited quarter ended April 3, 2016; comparisons below are with the quarter ended March 29, 2015 unless noted. Balance-sheet comparisons are with January 3, 2016.
Financial performance
| Metric | Q1 2016 | Comparable period |
|---|---|---|
| Revenue | $2.950 million | $6.159 million |
| Gross profit / margin | $1.156 million / 39% | $2.879 million / 47% |
| Operating expenses | $6.140 million | $6.437 million |
| Operating loss | $4.984 million | $3.558 million |
| Net loss | $5.093 million; $0.09 per share | $3.638 million; $0.06 per share |
| Operating cash flow | $(4.457) million | $(1.691) million |
| Investing cash flow | $(1.051) million | $(0.051) million |
| Financing cash flow | $9.674 million | $(0.093) million |
Revenue fell 52% year over year. New-product revenue declined 64% to $1.492 million; mature-product revenue declined 28% to $1.458 million. Gross margin contracted by 8 percentage points. Operating expenses decreased 5%, but the lower revenue and gross profit drove a larger operating and net loss.
Balance sheet, liquidity and debt
- At April 3, cash and cash equivalents were $23.302 million, total current assets $29.367 million, current liabilities $5.428 million, and total assets $33.232 million. Working capital was approximately $23.939 million.
- Debt included $3.0 million outstanding under the revolving credit facility and $414,000 in capital leases. The revolver carried a 3.44% interest rate and expires September 25, 2017; $3.0 million of additional availability remained.
- Cash increased by $4.166 million during the quarter, principally reflecting the March equity offering and $1.0 million borrowed on the revolver, offset by operating cash use and capital expenditures.
- On March 21, QuickLogic sold 10.0 million shares at $1.00 per share, receiving approximately $8.8 million net of $1.2 million in offering costs. The company said proceeds were for working capital and general corporate purposes, with possible use for technology or business acquisitions.
Changes, outlook and risks
- Management attributed the revenue decline primarily to lower smart-connectivity shipments and ArcticLink III display-bridge shipments, including expected delays in sensor-processing shipments. Samsung accounted for 35% of total revenue and 68% of new-product revenue in Q1 2016.
- Management expects mature-product revenue to gradually decline and tablet-related revenue to fluctuate with Android tablet demand. It expects R&D expense to increase as it develops new sensor-processing platforms. The filing projects approximately $250,000 of capital expenditures for the remainder of fiscal 2016.
- The company expects operating losses to continue through at least fiscal 2016. Management believes cash, available credit and the equity-offering proceeds will fund operations and capital expenditures for the next 12 months, but warns that weak new-product sales or inability to raise additional capital could materially harm its financial condition and covenant compliance.
- The lender’s amended covenants require, among other things, at least $6.0 million of unrestricted cash at the bank or its affiliates and a minimum tangible-net-worth level. QuickLogic reported compliance at quarter-end. The bank holds a first-priority security interest in substantially all company assets.
- Inventory increased to $3.330 million from $2.878 million, including finished goods of $2.158 million. Management noted increased obsolescence risk for ArcticLink III products because manufacturing lead times exceed binding customer forecasts and Samsung demand has fluctuated. The company relies on a limited number of suppliers and contract manufacturers.
- A licensor alleges unpaid royalties on ArcticLink III VX sales. QuickLogic disputes liability; mediation was tentatively scheduled for June 2016. The company estimated possible loss at $25,000–$250,000.
- Operating cash use increased year over year, partly because inventory rose and payables declined. No formal revenue or earnings guidance was provided.
Most important facts for investors to verify
- Whether new-product shipments and revenue recover, particularly in sensor processing, smart connectivity and display bridges, and whether customer concentration remains high.
- Whether gross margin, inventory quality and cash burn improve; monitor finished-goods levels and potential obsolescence reserves.
- Whether the company sustains covenant compliance and adequate liquidity as operating losses continue, and whether further financing is required.
- The outcome and financial impact of the disputed royalty claim, and the company’s continued dependence on limited-source suppliers.