QuickLogic Corporation — Q2 2016 Form 10-Q
Reporting period: Three and six months ended July 3, 2016; comparisons are to the periods ended June 28, 2015. Unaudited consolidated results. QuickLogic designs low-power programmable semiconductor solutions, software, and related technologies for mobile and IoT devices.
Financial performance
| Metric | Q2 2016 | Q2 2015 | Six months 2016 | Six months 2015 |
|---|---|---|---|---|
| Revenue | $2.717 million | $4.973 million | $5.667 million | $11.132 million |
| Gross profit / margin | $0.776 million / 29% | $2.143 million / 43% | $1.932 million / 34% | $5.022 million / 45% |
| Operating loss | $5.498 million | $4.209 million | $10.482 million | $7.767 million |
| Net loss | $5.574 million | $4.278 million | $10.667 million | $7.916 million |
| Diluted loss per share | $0.08 | $0.08 | $0.17 | $0.14 |
Q2 revenue fell 45% year over year; first-half revenue fell 49%. New-product revenue declined 59% in Q2 and 62% for the first half, while mature-product revenue fell 25% and 26%, respectively. Q2 operating expenses were $6.274 million, including $3.683 million of R&D and $2.591 million of SG&A. First-half R&D was $7.130 million and SG&A was $5.284 million.
Cash, debt, and liquidity
- At July 3, cash and cash equivalents were $18.970 million; current assets were $23.756 million and current liabilities were $3.113 million. Total assets were $27.153 million.
- Six-month operating cash use was $9.562 million, investing cash use was $1.513 million, and financing cash provided was $10.909 million. Cash decreased $0.166 million from the start of the fiscal year.
- Debt included $4.0 million outstanding on the revolving credit line and $251,000 in capital leases. The company reported $2.0 million of available credit under its $6.0 million facility, which expires September 25, 2017. The line’s stated interest rate was 3.44%.
- QuickLogic said cash, available credit, and March 2016 equity proceeds were expected to fund operations and capital expenditures for the next 12 months. It also reported compliance with loan covenants at quarter-end. The lender requires at least $6.0 million of unrestricted cash at the bank or its affiliates.
Drivers, outlook, and risks
- Management attributed the revenue decline mainly to lower smart-connectivity and display-bridge shipments; Q2 display-bridge revenue was down about $1.2 million and smart-connectivity revenue down about $620,000 versus the prior-year quarter. Mature-product demand also weakened, particularly in aerospace, test, and instrumentation.
- Samsung represented 31% of Q2 revenue and 33% of first-half revenue. Management noted that tablet-market demand may cause display-bridge and smart-connectivity revenue to fluctuate, and expects tablet display-bridge revenue to decline over time. Mature-product revenue is also expected to fluctuate.
- Gross margin was pressured by a $232,000 Q2 inventory-reserve increase and unabsorbed overhead from lower revenue. First-half margin was also affected by a $235,000 inventory write-down and lower revenue. Management warned that shorter mobile-product life cycles raise inventory-obsolescence risk.
- The company expects losses to continue through at least fiscal 2016 as it invests in products and technologies. It gave no specific revenue or earnings guidance. Management cautioned that insufficient new-product sales or inability to raise capital could harm operations and covenant compliance.
- In July 2016, the company reduced headcount by eight and expected a one-time severance charge of about $170,000 in Q3. A licensor royalty dispute was settled for $40,000, accrued in Q2. Wafer and finished-goods commitments were $357,000; other purchase obligations were $1.2 million, mostly due within 12 months.
- Manufacturing depends on a limited number of suppliers, often a single supplier per device; supply constraints, capacity allocation, and demand forecasting could cause delays, shortages, or excess inventory. The company does not hedge foreign-currency exposure; a 10% exchange-rate move was estimated to change first-half operating expenses by about $188,000.
Most important facts to verify
- Whether new sensor-processing products and design opportunities can offset continued declines in display-bridge, connectivity, and mature-product sales.
- Cash burn, available revolver capacity, and ongoing compliance with the lender’s cash and financial covenants.
- Customer concentration and the impact of Samsung demand on revenue and accounts receivable.
- Potential further inventory write-downs, supplier commitments, and the expected Q3 severance charge.
- Whether management’s 12-month liquidity assessment remains valid given continuing operating losses and the absence of specific revenue guidance.