QuickLogic Corporation — Q3 2015 Form 10-Q
Business context and period. QuickLogic develops low-power programmable semiconductor solutions, including sensor hubs, display and connectivity products, and FPGAs. This unaudited report covers the quarter ended September 27, 2015, and the first nine months of fiscal 2015; comparative periods ended September 28, 2014.
Financial performance
| Metric | Q3 2015 | Q3 2014 | Nine months 2015 | Nine months 2014 |
|---|---|---|---|---|
| Revenue | $4.2 million | $4.1 million | $15.3 million | $22.1 million |
| Gross profit / margin | $1.2 million / 30% | $1.8 million / 43% | $6.3 million / 41% | $8.8 million / 40% |
| Operating loss | $5.0 million | $3.9 million | $12.8 million | $8.8 million |
| Net loss | $5.1 million | $3.9 million | $13.0 million | $8.9 million |
| Loss per share, basic and diluted | $0.09 | $0.07 | $0.23 | $0.16 |
| Cash used in operating activities | Not provided separately | Not provided separately | $6.5 million | $9.8 million |
- Q3 revenue rose 2% year over year but declined 16% sequentially. New-product revenue was $2.9 million, up 28% year over year; mature-product revenue was $1.3 million, down 29%.
- For the first nine months, revenue fell 31%, including a 36% decline in new products and a 17% decline in mature products.
- Q3 gross margin fell 13 percentage points year over year, primarily due to lower mature-product revenue, which carries higher margins, and lower selling prices. Nine-month gross margin rose one percentage point, reflecting product mix.
- Research and development expense increased 21% in Q3 and 22% year to date, reflecting hiring and product-development costs. Total operating expenses increased 11% in Q3 and 8% year to date.
- At September 27, cash and cash equivalents were $23.4 million, down $6.6 million from December 28, 2014. Total assets were $31.1 million; current liabilities were $5.4 million; total liabilities were $6.6 million.
- Debt comprised $1.0 million under the revolving credit line and $349,000 of capital leases. The company reported $5.0 million of available credit and compliance with its loan covenants. The amended facility provides up to $6.0 million in advances, with potential increases at the company’s election.
- Investing activities used $237,000 and financing activities provided $136,000 during the first nine months of 2015. Capital expenditures were projected at approximately $45,000 for the remainder of fiscal 2015.
Management commentary, outlook and risks
- Management expected cash, cash equivalents and credit availability to fund operations, capital expenditures and working capital for the next 12 months. Longer-term funding needs could require additional debt or equity financing.
- No specific revenue or earnings guidance was provided. Management expected R&D expense to continue increasing as it developed sensor-processing platforms and emphasized Catalog CSSPs.
- Samsung represented 57% of Q3 revenue and 44% of nine-month revenue. Q3 Samsung sales were $2.4 million; management cited Android tablet demand and Samsung exposure as sources of revenue volatility. Revenue from South Korea was 58% of Q3 revenue.
- Management cited intense price competition, lower margins on high-volume opportunities, nonbinding customer forecasts, inventory-obsolescence exposure, and dependence on a limited number of suppliers. Wafer and finished-goods purchase commitments were $3.2 million; other purchase commitments were $1.8 million.
- A restructuring launched in June reduced the workforce by nine employees, or 9%. Nine-month restructuring charges were $246,000; $111,000 remained accrued at quarter-end. The company also planned to close its Canadian subsidiary by year-end.
- A licensor disputed royalties on ArcticLink III VX sales. QuickLogic believed no royalties were owed; the parties were arranging mediation. The company estimated possible loss of $25,000 to $250,000.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Whether new-product and sensor-processing opportunities can offset the steep nine-month revenue decline and reduce reliance on Samsung and tablet demand.
- Whether gross margins can recover despite pricing pressure, mix shifts and possible inventory obsolescence.
- Whether operating losses and cash use remain consistent with management’s 12-month liquidity assessment, and whether the company continues to meet credit covenants.
- The status and financial outcome of the licensor royalty dispute, restructuring and Canadian subsidiary closure.
- The timing and economics of wafer commitments, other purchase obligations, and any need for additional financing.