QuickLogic Corporation — Q3 2014 Form 10-Q
Business and period: QuickLogic develops low-power programmable semiconductor solutions, including customer-specific standard products (CSSPs) and FPGAs. This unaudited filing covers the quarter and nine months ended September 28, 2014; comparative periods ended September 29, 2013.
Financial performance and position
| Metric | Q3 2014 | Q3 2013 | Nine months 2014 | Nine months 2013 |
|---|---|---|---|---|
| Revenue | $4.1 million | $9.1 million | $22.1 million | $17.2 million |
| Gross profit / margin | $1.8 million / 43% | $3.0 million / 33% | $8.8 million / 40% | $6.0 million / 35% |
| Operating loss | $3.9 million | $2.2 million | $8.8 million | $8.7 million |
| Net loss | $3.9 million | $2.3 million | $8.9 million | $9.1 million |
| Basic and diluted loss per share | $0.07 | $0.05 | $0.16 | $0.20 |
- At September 28, cash and cash equivalents were $31.2 million; total assets were $43.9 million and stockholders’ equity was $38.8 million.
- Debt included $1.0 million drawn on the revolving credit line and $448,000 in capital lease obligations. The company reported $5.0 million of available credit and compliance with loan covenants.
- For the first nine months, operating cash flow was negative $9.8 million, investing cash flow negative $523,000, and financing cash flow positive $4.1 million. Cash declined $6.2 million from year-end 2013 to $31.2 million.
- Inventory increased to $6.9 million from $4.1 million at year-end, primarily reflecting higher finished goods. Trade payables fell to $1.7 million from $3.6 million.
Material changes and management commentary
- Q3 revenue fell 55% year over year and 40% sequentially. New-product revenue declined 69% year over year, mainly due to lower ArcticLink III display-solution shipments to Samsung for Android tablets. Management attributed weakness partly to a significant decline in the branded Android tablet market.
- For the first nine months, revenue rose 29%, primarily due to stronger new-product shipments to Samsung in Q1. Samsung represented 53% of nine-month revenue and 27% in Q3; the filing also reports Samsung at 75% of nine-month new-product revenue.
- Q3 gross margin improved to 43% from 33%, which management attributed mainly to product and customer mix, despite lower gross profit dollars. Nine-month margin increased to 40% from 35%, helped by mix, favorable purchase-price adjustments, previously reserved inventory sales, and higher royalties.
- Q3 R&D expense rose 49% year over year to $3.1 million; management expected further increases from planned engineering hires. Nine-month R&D increased 48% to $8.8 million. Q3 SG&A fell 20% to $2.6 million, mainly because of lower executive bonus accruals.
Outlook, risks, and unusual items
- No specific revenue or earnings guidance is provided. Management said available cash and credit should fund operations and capital expenditures for the next 12 months; it projected approximately $715,000 in capital expenditures for the remainder of fiscal 2014.
- Management warned that display-solution revenue may continue to fluctuate with Android tablet demand. Samsung is not obligated to continue purchasing, and customer concentration, long supplier lead times, and nonbinding forecasts increase revenue and inventory-obsolescence risk.
- QuickLogic relies on a limited number of contract manufacturers and suppliers, often a single supplier for particular services. Supply interruptions, capacity constraints, or changes in demand could affect product availability, cost, and results.
- Outstanding wafer and finished-goods purchase commitments were $569,000, versus $10.8 million at year-end 2013; other purchase commitments were $1.9 million. Subsequent to quarter-end, the company placed approximately $469,000 of orders for headquarters leasehold improvements.
- Operating cash use exceeded the prior-year period, reflecting the net loss and working-capital use, including increased inventories and lower accounts payable. The filing notes that further capital may be needed depending on future performance and market conditions.
- The company recorded no restructuring costs in the first nine months of 2014, compared with $181,000 in the prior-year period. Nine-month net loss included an $18,000 income-tax benefit; U.S. deferred tax assets remained subject to a full valuation allowance.
Key facts for investors to verify
- Whether Samsung shipments and Android tablet demand recover, and how customer concentration affects revenue and inventory exposure.
- Whether inventory levels and gross margins remain sustainable as product mix and demand change.
- Cash burn, the availability and covenant conditions of the credit facility, and the timing of any need for additional financing.
- Whether planned R&D investment and new CSSP/Catalog CSSP opportunities convert into sustained revenue and profitability.