QuickLogic Corporation — FY2020 Form 10-K
Reporting period: Fiscal year ended January 3, 2021; comparison is with fiscal 2019, ended December 29, 2019. This is an annual report, not a standalone fourth-quarter report. QuickLogic is a fabless semiconductor and software company focused on low-power AI, voice and sensor processing, eFPGA IP, and related platforms and software.
Financial performance and liquidity
| Metric | FY2020 | FY2019 |
|---|---|---|
| Revenue | $8.634 million | $10.310 million |
| Gross profit / margin | $4.248 million / 49% | $5.905 million / 57% |
| Operating loss | $10.869 million | $15.363 million |
| Net loss | $11.151 million | $15.444 million |
| Operating cash flow | $(6.744) million | $(11.594) million |
| Cash from investing activities | $(1.054) million | $(0.921) million |
| Cash from financing activities | $8.998 million | $7.600 million |
- Revenue declined 16%. New-product revenue fell 11% to $2.782 million; mature-product revenue fell 19% to $5.852 million. New products were 32% of revenue, versus 30% in FY2019.
- Gross margin declined eight percentage points, reflecting product and customer mix, lower revenue, COVID-19 effects and higher inventory write-downs. FY2020 inventory write-downs were $199,000, compared with $94,000.
- Cash, cash equivalents and restricted cash were $22.748 million at year-end; working capital was $10.178 million. The company had $15.0 million drawn on its revolving credit facility and $1.192 million in PPP debt at year-end. Lease liabilities totaled $1.882 million. The PPP loan was forgiven on January 26, 2021, after year-end.
- Net proceeds from a June 2020 share offering were approximately $8.1 million. Shares outstanding increased to 11.094 million at year-end from 8.331 million a year earlier.
- Management reported compliance with the bank facility’s covenants. The facility’s $15.0 million maturity was extended to September 28, 2022, and its interest rate was amended to 0.5% above prime. The company must maintain at least $3.0 million of unrestricted cash at the bank.
Changes, outlook and commentary
- Operating expenses declined: R&D was $7.544 million, down 39%, and SG&A was $6.820 million, down 24%. A January 2020 restructuring generated $753,000 of charges, primarily severance and facilities costs; lower compensation and travel also reduced expenses.
- Management expects FY2021 revenue growth from EOS S3, SensiML AI SaaS and eFPGA licensing. It believes existing cash and available resources under the revolving facility can fund operations and capital expenditures for the next 12 months. The filing provides no numerical revenue or earnings guidance.
- Management expects losses to continue through at least FY2021 as it invests in products and technology; the risk-factor summary warns losses could continue for two to three years. Longer-term funding may require additional financing, and availability on acceptable terms is not assured.
- COVID-19 adversely affected FY2020 results and created supply-chain, customer-deployment and logistics disruption. Management said it found alternatives that avoided a material impact on its ability to fulfill demand, but future effects remain uncertain.
- A January 2021 Indian tax authority order disputes the company’s transfer-pricing rate for assessment year 2017–18 and may affect later years. QuickLogic intends to appeal; the potential tax effect was still being evaluated.
- Three customers represented approximately 19%, 16% and 10% of FY2020 revenue. Distributor sales are also concentrated; the filing reports one distributor at 24% of revenue, with distributor sales-in and customer sales-out measures presented separately.
Key risks and unusual items
- Persistent losses and cash burn, dependence on successful growth in new products, and potential need for additional capital.
- Customer concentration, uncertain design-win conversion and demand, long sales cycles, pricing pressure, and risk that emerging eFPGA or endpoint-AI markets do not develop as expected.
- Reliance on third parties, often single sources, for fabrication, assembly, testing, programming and logistics; COVID-19 or other disruptions could constrain supply or demand.
- Inventory obsolescence and forecast risk are significant; inventory valuation was identified as a critical audit matter. Auditors issued an unqualified opinion on the financial statements. The auditor was not engaged to opine on internal-control effectiveness; management assessed controls as effective.
- The $1.2 million PPP loan forgiveness is a subsequent event and was to be recorded as other income in FY2021. The company also recognized restructuring charges and reported the Indian transfer-pricing notice noted above.
Investor verification points
- Track whether FY2021 growth materializes in EOS S3, SensiML SaaS and eFPGA licensing, and whether new-product sales improve gross margin and cash generation.
- Review cash burn, the $15.0 million revolver, covenant compliance and funding needs beyond the next 12 months; confirm the accounting and cash impact of PPP forgiveness.
- Monitor revenue and receivables exposure to major customers and distributors, and changes in inventory reserves and product demand forecasts.
- Follow the Indian transfer-pricing appeal and any resulting tax provision or payment, as well as ongoing COVID-19 supply-chain and customer impacts.