QuickLogic Corporation — Q2 2017 Form 10-Q
Reporting period: Three and six months ended July 2, 2017. Unaudited results; the company designs fabless semiconductor solutions, embedded software, and eFPGA intellectual property for mobile and IoT markets.
Financial results
| Metric | Q2 2017 | Q2 2016 | Six months 2017 | Six months 2016 |
|---|---|---|---|---|
| Revenue | $3.026 million | $2.717 million | $6.196 million | $5.667 million |
| Gross profit / margin | $1.380 million / 46% | $0.776 million / 29% | $2.753 million / 44% | $1.932 million / 34% |
| Operating expenses | $4.933 million | $6.274 million | $9.774 million | $12.414 million |
| Operating loss | $(3.553) million | $(5.498) million | $(7.021) million | $(10.482) million |
| Net loss | $(3.607) million | $(5.574) million | $(7.172) million | $(10.667) million |
| Diluted loss per share | $(0.05) | $(0.08) | $(0.10) | $(0.17) |
Revenue increased 11% year over year in Q2 and 9% for the six-month period. Q2 new-product revenue was $1.491 million, up 25% year over year, principally reflecting eFPGA IP license revenue; mature-product revenue was $1.535 million, up 1%. Gross-margin improvement reflected higher-margin IP licensing and, versus Q2 2016, no inventory write-off (the prior-year quarter included $232,000). The six-month 2017 inventory write-down was $104,000, compared with $235,000 in 2016.
Research and development expense fell 37% in Q2 and 33% for six months, primarily due to strategic realignment and reduced compensation and other costs. Management attributed the smaller net loss to those expense reductions and better gross margins.
Cash, debt, and liquidity
- At July 2, 2017, cash and cash equivalents were $22.234 million, total assets $30.240 million, and stockholders’ equity $20.955 million. Cash increased $7.364 million from January 1, 2017.
- Debt included a fully drawn $6.0 million revolving credit line and $296,000 in capital leases. The bank line was due to mature September 25, 2017; the company reported compliance with its loan covenants at quarter-end.
- For the first six months, operating cash use was $7.758 million, investing cash use was $48,000, and financing provided $15.170 million. Financing included approximately $15.8 million net proceeds from a March stock offering of 11.3 million shares.
- Management expected cash and other financial resources to fund operations and capital expenditures for the next 12 months. Longer-term liquidity depends in part on new-product sales, access to capital, and renewal or replacement of the bank facility. The company reported an accumulated deficit of approximately $247 million and expected losses to continue through at least fiscal 2017.
Changes, outlook, and risks
- Q2 revenue declined 5% sequentially; management attributed the decline in new products mainly to lower ArcticLink III and Eclipse II shipments. New-product revenue was down 22% sequentially, while mature-product revenue rose 22% sequentially.
- Management said display-bridge and smart-connectivity revenue could fluctuate with Android tablet demand; mature-product revenue was also expected to fluctuate. No specific revenue or earnings guidance was provided.
- Samsung represented 21% of Q2 revenue and 22% for the first six months. One distributor represented 33% of Q2 revenue and 41% of quarter-end receivables; the filing also reports customer and distributor concentration at or above 10%.
- Key risks include continued operating losses and cash burn; dependence on successful commercialization of new products and eFPGA IP; the September 2017 credit-line maturity; reliance on a limited number of manufacturing suppliers; inventory obsolescence and purchase commitments; and customer, distributor, and product-demand concentration. Foreign-currency exposure is unhedged; a 10% exchange-rate movement was estimated to change first-half operating expenses by approximately $231,000.
- Wafer and finished-goods purchase commitments were $1.023 million, and other purchase commitments were $693,000. The filing describes ordinary-course litigation risk but provides no specific material pending case or quantified contingency in the supplied text.
Investor verification points
- Confirm whether the $6.0 million bank facility was renewed or replaced before its September 25, 2017 maturity, and review related covenant terms.
- Track operating cash use against cash on hand and determine whether new-product revenue can reduce losses without further equity financing.
- Assess the durability and economics of eFPGA IP license revenue, including its effect on gross margin and the timing of recognition.
- Monitor Samsung and distributor/customer concentration, receivables collection, and exposure to tablet-market demand.
- Review inventory growth, obsolescence/write-down risk, and supplier commitments against actual customer demand.
- Consider the dilution from the March 2017 share issuance and the additional shares authorized under the company’s equity plans.