QuickLogic Corporation — Q3 2023 Form 10-Q
Business context and reporting period. QuickLogic develops low-power semiconductor platforms, eFPGA intellectual property and related engineering services, and sensor-processing and AI software. The unaudited quarter ended October 1, 2023; comparable periods ended October 2, 2022. Amounts below are in millions of dollars unless stated otherwise.
Financial performance and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $6.665 | $3.459 | $13.719 | $12.096 |
| Gross profit / margin | $5.128 / 77% | $1.678 / 49% | $8.721 / 64% | $6.683 / 55% |
| Operating income (loss) | $1.280 | ($1.240) | ($2.046) | ($2.876) |
| Net income (loss) | $1.192 | ($1.347) | ($2.305) | ($3.035) |
| Diluted EPS | $0.08 | ($0.11) | ($0.17) | ($0.24) |
- Q3 revenue increased 93% year over year. New-product revenue was $6.096 million, up 171%; mature-product revenue fell 53% to $0.569 million. eFPGA IP and professional services generated $5.838 million in Q3, primarily from professional services.
- Nine-month revenue rose 13%. eFPGA IP and professional services revenue was $10.505 million, compared with $4.911 million in the prior-year period; hardware revenue fell 78% to $0.776 million.
- Q3 operating expenses were $3.848 million, including R&D of $1.933 million (up 90% year over year) and SG&A of $1.915 million. Nine-month operating expenses increased 13% to $10.767 million, primarily reflecting higher R&D.
- For the nine months, operating cash flow was negative $0.118 million, investing cash flow was negative $2.437 million, and financing cash flow was positive $1.979 million. Cash, cash equivalents and restricted cash declined $0.576 million to $18.625 million.
- At October 1, 2023, total assets were $36.549 million, current assets $28.063 million, current liabilities $22.052 million, and stockholders’ equity $14.040 million. Cash includes a $15.0 million revolving-facility advance. The company also had $15.0 million outstanding on that facility at 9.0% interest, plus approximately $0.9 million of finance-lease debt. Facility advances mature December 31, 2024; the facility is secured by substantially all company assets.
Material changes and management commentary
- Q3 returned to profitability, compared with a loss in Q3 2022 and a $2.3 million loss in the preceding quarter, according to management. Management attributed the year-over-year revenue growth mainly to eFPGA professional services.
- Management said Q3 and year-to-date gross margins benefited from the timing of certain professional-services costs into later periods and capitalization of tooling for long-term contracts. The company capitalized $3.86 million of tooling year to date, to be depreciated over an estimated seven years. Management expects later recognition of costs to reduce gross margins in subsequent quarters of 2023 and 2024.
- Contract assets rose to $4.015 million from $1.987 million at January 1, 2023; management linked the increase in part to a $14.9 million professional-services contract signed later in the quarter. The filing reports $0.333 million of deferred revenue on the balance sheet and $0.304 million of contract liabilities related to professional services.
- Accounts receivable was $0.481 million, down from $2.689 million at January 1; a customer balance of approximately $1.16 million was converted into a note receivable. The revised note bears 4.69% interest compounded monthly and is due June 28, 2024, unless prepaid.
- Customer concentration was significant: Customer A represented 84% of Q3 revenue and 67% of nine-month revenue, and 89% of accounts receivable at October 1. The company also reported $6.1 million of unrecorded purchase obligations due within 12 months.
Outlook, risks and contingencies
- Management expects revenue growth primarily from eFPGA IP licensing and professional services in Q4 2023 and fiscal 2024. It expects existing cash, operating revenues and financial resources from the revolving facility to fund operations and capital expenditures for the next 12 months.
- Longer-term liquidity depends in part on sufficient new-product sales and renewal or replacement of the revolving facility before its December 2024 expiration, and potentially access to additional capital. The company cautioned that funding may not be available on acceptable terms and that failure to generate sales or raise capital could adversely affect operations and covenant compliance. The filing does not clearly state the facility’s total capacity or remaining availability.
- Management has experienced losses in recent years and stated it expected losses to continue through at least fiscal 2023, notwithstanding Q3’s reported profit. Revenue depends on converting design opportunities, customer acceptance, product cycles, manufacturing access and other semiconductor-market factors. Management also cited potential inventory obsolescence and margin pressure if larger-volume sales carry lower margins.
- A ransomware incident detected in January 2023 affected a limited number of IT systems, including systems containing employee personal information. The forensic investigation found no impact on financial systems; the company said it did not expect a material effect on operations or results and is providing credit monitoring to potentially affected individuals.
- The company reported no current legal proceedings and no material changes to previously disclosed risk factors. It reported compliance with revolving-facility covenants at October 1, 2023. Cash was concentrated at Heritage Bank, which the company identified as a liquidity risk if access to deposits or funding were impaired.
Most important facts for investors to verify
- Whether eFPGA services growth converts into recurring, collected revenue, including the terms, execution and cash conversion of the $14.9 million contract and the $4.0 million contract-asset balance.
- How much of Q3’s unusually high 77% gross margin reflects sustainable economics versus deferred costs and capitalized tooling, and the resulting margin impact in later quarters.
- Customer A’s concentration and payment performance, including collection of the customer note due in June 2024.
- The revolving facility’s capacity, unused availability, renewal or refinancing prospects, and compliance with covenants as the December 2024 maturity approaches.
- The timing and cash requirements of $6.1 million in purchase obligations and the company’s planned tooling and other capital expenditures.