QuickLogic Corporation — FY2017 Form 10-K Summary
Reporting period: Fiscal year ended December 31, 2017. QuickLogic is a fabless semiconductor company selling low-power SoCs, FPGAs, embedded FPGA (eFPGA) intellectual property, software and related solutions for mobile, wearable and IoT applications. The filing also reports unaudited fourth-quarter results.
Financial performance
| Metric | FY2017 | FY2016 |
|---|---|---|
| Revenue | $12.149 million | $11.421 million |
| Gross profit / margin | $5.522 million / 45% | $3.773 million / 33% |
| Operating expenses | $19.472 million | $22.575 million |
| Operating loss | $13.950 million | $18.802 million |
| Net loss | $14.131 million; $0.18 per share | $19.148 million; $0.29 per share |
| Cash used in operations | $12.938 million | $15.259 million |
- Revenue increased 6%. New-product revenue was $5.853 million, up 4%, and mature-product revenue was $6.296 million, up 9%. New products represented 48% of revenue.
- Gross margin improved to 45%, chiefly reflecting higher-margin mature-product sales and $475,000 of eFPGA license revenue. Management cautioned that mobile solutions generally carry lower margins than mature FPGA products.
- R&D expense fell 22% to $9.572 million and SG&A fell 4% to $9.900 million, primarily following prior cost reductions and organizational realignment.
- Fourth-quarter revenue was $2.981 million and net loss was $3.409 million, compared with $2.945 million and $3.858 million, respectively, in the year-earlier quarter.
Liquidity, debt and cash flows
- Year-end cash and cash equivalents were $16.527 million; working capital was $12.619 million. Total assets were $24.636 million and stockholders’ equity was $14.878 million.
- At December 31, $6.0 million was outstanding on the Silicon Valley Bank revolving facility at 4.31%; capital software lease obligations were $654,000. The facility was extended through September 24, 2018 and has minimum cash and quick-ratio covenants. QuickLogic reported covenant compliance at year-end.
- On January 2, 2018, the company repaid the $6.0 million revolving balance. The filing says the facility would need renewal or replacement before expiration.
- Operating cash outflow improved to $12.938 million. Investing activities used $642,000, while financing activities provided $15.237 million, principally from a March 2017 stock offering that generated approximately $15.2 million net. Shares outstanding rose from 68.134 million to 80.536 million during the year.
- Management believed cash and available credit would fund operations and capital expenditures for the next twelve months, while warning that longer-term funding could require additional financing and that availability on acceptable terms was not assured.
Changes, outlook and principal risks
- Revenue recovered modestly from FY2016, but remained well below FY2015’s $18.956 million. FY2017 net loss narrowed from $19.148 million to $14.131 million; the company has accumulated losses of approximately $254 million.
- Samsung accounted for 19% of FY2017 total revenue, down from 33% in FY2016. Two customers together represented 30% of annual revenue. Revenue is concentrated, and distributors and customers can change or cancel orders.
- Management expected losses to continue through at least FY2018 while it developed products and technologies. It anticipated eFPGA licensing revenue growth beginning in FY2018, but provided no quantified revenue or earnings guidance.
- Key execution risks include converting design opportunities to sales, commercial acceptance of new products and the still-developing eFPGA market, short mobile product cycles, price and margin pressure, demand forecasting and potential inventory obsolescence.
- Manufacturing relies on a limited number of third parties, often a single supplier for a device. Supply interruptions, capacity constraints, yield or quality issues, and long lead times could affect deliveries and costs.
- Other relevant risks include customer concentration, continued operating cash burn, reliance on financing and covenant compliance, foreign-exchange exposure, and competition. The filing reports no material pending legal proceedings; ordinary-course claims remain possible.
- The March 2017 offering raised capital but diluted existing holders. The company reported effective disclosure controls and internal control over financial reporting, with an unqualified auditor opinion.
Important facts for investors to verify
- Whether FY2018 eFPGA licensing and silicon design wins converted into recurring revenue, and whether new-product growth can support profitability.
- Subsequent cash burn, liquidity, and the status and terms of credit-facility renewal or replacement after the September 2018 expiration date.
- Customer and distributor concentration, especially Samsung-related demand, and the effect of any order changes on inventory and cash flow.
- Gross-margin sustainability, including product mix, pricing, inventory write-downs and the contribution of license revenue.
- The effects of the new revenue-recognition standard on eFPGA licensing and related services, which management expected could affect timing of recognition.