QuickLogic Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 29, 2015; comparisons are with the three months ended March 30, 2014. Financial statements are unaudited. QuickLogic develops fabless programmable semiconductor products, including customer-specific standard products (CSSPs), FPGAs and related software and hardware.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Revenue | $6.159 million | $11.164 million; down 45% |
| Gross profit / margin | $2.879 million / 47% | $4.058 million / 36% |
| Operating expenses | $6.437 million | $6.106 million; up 5% |
| Operating loss | $3.558 million | $2.048 million |
| Net loss / diluted loss per share | $3.638 million / $0.06 | $2.110 million / $0.04 |
| Cash used in operating activities | $1.691 million | $2.845 million |
Cash and cash equivalents were $28.215 million at March 29, 2015, down from $30.050 million at December 28, 2014. Total assets were $37.499 million and stockholders’ equity was $32.383 million. Total liabilities were $5.116 million. Debt and capital lease obligations totaled $1.369 million: $1.000 million under the revolving line and $369,000 in capital leases. The company had $5.0 million of additional revolving credit available under its $6.0 million facility, expiring June 27, 2016, and reported compliance with its financial covenants.
Gross margin improved year over year primarily due to product and customer mix, including higher-margin shipments of first-generation new products. Operating cash use was lower than in the prior-year quarter, helped by a $1.586 million inventory reduction. Investing cash use was $51,000; financing cash use was $93,000.
Material changes and operating trends
- New-product revenue was $4.144 million, down 54% year over year; mature-product revenue was $2.015 million, down 10%.
- Management attributed the new-product decline mainly to reduced shipments of the ArcticLink III display solution to Samsung for certain Android tablets, amid weakness in the tablet market. Samsung represented 39% of total revenue, versus 70% in the prior-year quarter; it accounted for $2.4 million of current-quarter revenue versus $7.8 million a year earlier.
- Research and development expense increased 32% to $3.477 million, mainly from higher compensation and third-party chip design costs. Management expected R&D expense to continue increasing due to planned engineering hires.
- Selling, general and administrative expense fell 15% to $2.960 million, primarily because of lower stock-based compensation.
- Revenue concentration remained material: Distributor A represented 29% and Customer B 16% of revenue; Customer G (Samsung) represented 39%. Distributor A and Customer G accounted for 50% and 23% of accounts receivable, respectively.
Outlook, risks and contingencies
- Management believed cash, cash equivalents and available revolving credit would fund operations, capital expenditures and working capital for at least the next 12 months. Longer-term funding could require additional equity or debt financing.
- Capital expenditures were projected at approximately $1.3 million for the remainder of fiscal 2015. The filing provides no specific revenue or earnings guidance.
- Management emphasized dependence on converting design opportunities into sales, acceptance of new products and CSSPs, and volatile demand in mobile markets. Large-volume opportunities may bring lower margins, and Samsung-related revenue is exposed to Android tablet demand and product-life-cycle fluctuations.
- Inventory obsolescence risk may rise as mobile product cycles shorten; manufacturing lead times can exceed binding customer forecasts. Wafer and finished-goods commitments were $491,000, with other purchase obligations of approximately $1.5 million, including $1.2 million due within 12 months.
- The company relies on a limited number of suppliers and contract manufacturers, sometimes a single source for a device, and may face capacity, delivery, cost or quality disruptions. It also disclosed foreign-currency exposure and no use of currency hedges.
- Ordinary-course legal claims may arise, including intellectual-property and collection matters; the filing does not identify a specific material pending case or quantify a litigation contingency.
- After quarter-end, stockholders approved increases of 2.5 million shares reserved under the 2009 Stock Plan and 1.0 million shares under the employee stock purchase plan.
Important facts for investors to verify
- Whether new-product demand—especially Samsung and Android tablet shipments—stabilizes, and how much revenue remains concentrated among major customers and distributors.
- Whether the improved gross margin is sustainable as product mix changes and CSSP volume grows.
- Whether rising R&D spending and operating losses can be supported by cash generation, credit availability and covenant compliance.
- Potential inventory write-downs, supplier commitments and supply-chain constraints as demand and product forecasts change.
- The status and potential impact of ordinary-course legal matters, tax uncertainties and the additional equity-plan authorizations.