QuickLogic Corporation — Q3 2022 Form 10-Q
Reporting period: Three and nine months ended October 2, 2022; comparisons are to the periods ended October 3, 2021. Amounts are in millions unless otherwise stated. The statements are unaudited.
Business context
QuickLogic develops low-power semiconductor platforms, embedded software and eFPGA intellectual property (IP) for AI, voice and sensor processing, serving consumer, industrial, military, aerospace and defense markets. Its new-product category includes newer hardware, eFPGA IP and SensiML/QuickAI software and services.
Financial performance
- Q3 revenue: $3.46 million, down 10% year over year. New-product revenue fell 18% to $2.25 million, mainly as hardware revenue declined $1.41 million; eFPGA IP revenue rose $0.70 million and SaaS and other revenue rose $0.21 million. Mature-product revenue increased 10% to $1.21 million.
- First nine months revenue: $12.10 million, up 35%. New-product revenue grew 73% to $8.83 million, principally on eFPGA IP revenue of $4.91 million versus $1.15 million a year earlier. Management attributed much of the eFPGA increase to professional services; eFPGA IP product revenue itself declined $1.0 million year over year. Mature-product revenue decreased 16% to $3.26 million.
- Profitability: Q3 gross profit was $1.68 million, with a 49% gross margin versus 71% a year earlier; the decline reflected lower hardware revenue, higher eFPGA-related costs and comparison with prior-year IP license revenue that had minimal associated costs. Q3 operating loss was $1.24 million and net loss was $1.35 million, or $0.11 per diluted share. For nine months, gross profit was $6.68 million (55% margin versus 59%), operating loss $2.88 million and net loss $3.04 million ($0.24 per diluted share).
- Expenses and other items: Q3 operating expenses were $2.92 million, down 27% year over year, including R&D of $1.02 million and SG&A of $1.90 million. Nine-month operating expenses were $9.56 million, down 15%. Prior-year nine-month results included a $1.19 million gain from forgiveness of a PPP loan; no such gain was recorded in 2022.
- Cash flow: In the first nine months, operating cash use was $3.42 million versus $3.05 million a year earlier; investing cash use was $0.63 million. Financing provided $4.49 million, primarily reflecting $4.8 million in net stock issuance proceeds, partly offset by finance-lease payments. Cash, cash equivalents and restricted cash increased $0.43 million to $20.04 million.
- Balance sheet and debt: At October 2, cash and restricted cash were $20.04 million; current assets were $27.50 million and current liabilities $18.98 million. The company had $15.0 million outstanding on its revolving credit facility at 6.75%, plus approximately $0.4 million of finance-lease debt. Total liabilities were $19.45 million and stockholders’ equity $12.31 million. The facility is secured by substantially all company assets.
Material changes and management outlook
- Q3 revenue was down 24% from the prior quarter, according to management. Management reported a 157% increase in net loss from the prior quarter; the filing does not provide the prior-quarter dollar comparison in this discussion.
- Management said it expected losses to continue through at least fiscal 2022 while developing products and technologies. It expects growth from new products, eFPGA IP and SensiML software, but did not provide quantified revenue or earnings guidance.
- Management believed existing cash and available resources under the revolving facility would 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 facility, which expires in December 2023. The company cautioned that additional capital may not be available on acceptable terms and that weak sales or inability to raise capital could impair operations and covenant compliance.
- The company raised approximately $4.7 million net in registered direct stock offerings during the nine-month period, issuing 797,279 shares at $4.78 and $6.57 per share. Proceeds are intended for working capital, next-generation eFPGA-based products and general corporate purposes, among other potential uses.
Risks, contingencies and other notable disclosures
- Revenue and liquidity face risks from semiconductor cyclicality, conversion of design opportunities, new-product acceptance, customer product cycles, manufacturing capacity and lead times, inventory and wafer commitments, and the ability to secure financing. Management noted that pursuing shorter-life-cycle mobile products could increase obsolescence risk.
- Revenue concentration is significant: in Q3, one customer represented 30% of revenue, another 13%, and a third 12%; one distributor represented 20%. Customer and distributor identities are anonymized in the filing. Accounts receivable also included significant balances from individual customers.
- At quarter end, wafer purchase commitments were $0.5 million and other purchase obligations due within 12 months were $0.8 million. The company disclosed possible ordinary-course legal claims but reported no current legal proceedings.
- The company was in compliance with Heritage Bank covenants at quarter end. An amended covenant requires minimum remaining-months liquidity of nine months and unrestricted cash in the pledged account to exceed outstanding advances.
- Management reported effective disclosure controls and no material changes to internal control over financial reporting. No material COVID-19 impact changes were reported versus the latest annual report.
Important facts for investors to verify
- Whether eFPGA revenue growth can translate into higher-margin, repeatable IP license revenue rather than being driven largely by professional services.
- Whether hardware revenue stabilizes after the Q3 decline, and how product mix affects gross margin.
- Customer and distributor concentration, including receivable collection and the growth in accounts receivable and contract assets.
- Cash burn, covenant headroom and the availability or renewal of the $15.0 million revolving facility before its December 2023 expiration.
- The company’s ability to fund product development without further dilution or financing on unfavorable terms.