QuickLogic Corporation — Q1 2019 Form 10-Q
Business context and period. QuickLogic develops low-power semiconductor platforms, eFPGA intellectual property and software for sensor, voice and AI processing, alongside display and connectivity products. The unaudited quarter ended March 31, 2019; the comparable quarter ended April 1, 2018. The company acquired SensiML on January 3, 2019, adding its machine-learning sensor analytics software toolkit.
Financial performance
| Metric | Q1 2019 | Q1 2018 |
|---|---|---|
| Revenue | $3.194 million | $2.764 million |
| Gross profit / margin | $1.979 million / 62% | $1.389 million / 50% |
| Operating expenses | $5.688 million | $5.260 million |
| Operating loss | $3.709 million | $3.871 million |
| Net loss | $3.476 million | $3.970 million |
| Basic and diluted loss per share | $0.04 | $0.05 |
| Operating cash used | $2.916 million | $3.754 million |
Revenue increased 16% year over year. Mature-product revenue rose 71% to $2.507 million, while new-product revenue declined 47% to $687,000. Management attributed the mature-product increase mainly to military, aviation and industrial shipments; lower connectivity and display revenue drove the new-product decline, partly offset by QuickAI and sensor-processing revenue. Gross margin improved primarily because mature products represented 78% of revenue versus 53% a year earlier. R&D expense rose 20% to $3.242 million, mainly due to SensiML personnel; SG&A fell 4% to $2.446 million.
Cash, cash equivalents and restricted cash totaled $23.219 million at quarter-end, including $100,000 restricted cash. Current assets were $31.026 million and current liabilities $18.911 million. The company had $15.0 million drawn on its revolving credit facility at 6% interest, plus $350,000 of finance-lease liabilities. It was in compliance with loan covenants and was required to maintain at least $3 million of unrestricted cash at Heritage Bank. On April 2 and 3, 2019, it repaid $5 million and $3 million, respectively, of revolving debt.
Investing cash use was $91,000 and financing cash use was $237,000. Cash and restricted cash declined $3.244 million during the quarter. Stock-based compensation was $951,000, versus $432,000 in the prior-year quarter.
Material changes and notable items
- Q1 net loss narrowed by $494,000 year over year, reflecting higher gross profit and a $268,000 income-tax benefit; the prior-year quarter recorded $61,000 of tax expense.
- SensiML contributed insignificant revenue in the quarter. Results included $779,000 of SensiML-related operating expenses, including $104,000 of acquisition costs and $38,000 of acquired-intangible amortization. Acquisition accounting remained preliminary.
- Adoption of lease accounting resulted in recognition of $975,000 of right-of-use assets and $939,000 of lease liabilities, with no material income-statement impact.
- The company’s shelf registration statement became effective March 29, 2019, allowing offerings of up to $75 million; the filing does not report an issuance under it during the quarter.
Outlook, risks and contingencies
Management said existing cash and cash equivalents and resources from the revolving facility should fund operations and capital expenditures for the next 12 months. It expects longer-term funding to depend on sales growth from new products, continued access to credit and potentially additional capital; it gave no specific revenue or earnings guidance. The revolving facility matures in September 2020, and renewal or alternative financing will be needed before expiration. Management cautioned that weak new-product sales, unavailable or unfavorable financing, or covenant violations could materially harm operations and liquidity.
Other disclosed risks include dependence on a limited number of manufacturers and suppliers, advance wafer commitments and potential supply interruptions; product obsolescence and inventory exposure as product cycles shorten; and customer and distributor concentration. In Q1, three distributors accounted for 80% of revenue in aggregate, and one customer accounted for 27%. Management reported no litigation as of March 31, 2019. Operating expenses denominated in foreign currencies were about 24% of total operating expenses; a 10% exchange-rate movement was estimated to change quarterly operating expenses by approximately $137,000.
Important facts for investors to verify
- Whether mature-product shipments can sustain revenue and margin improvement while new-product revenue remains weak and variable.
- Progress converting new-product, eFPGA and SensiML opportunities into meaningful recurring revenue, and the economics of the SensiML acquisition.
- Cash burn, the effect of the subsequent $8 million debt repayment on liquidity, covenant compliance and future borrowing availability.
- Customer and distributor concentration, supplier capacity and wafer commitments, and potential inventory obsolescence.
- Final acquisition valuation and any changes to acquired goodwill or intangible assets during the measurement period.