QuickLogic Corporation — Q1 2017 Form 10-Q
Reporting period: Three months ended April 2, 2017; comparisons are with the three months ended April 3, 2016 unless otherwise noted. QuickLogic designs and sells low-power programmable semiconductor solutions and licenses eFPGA intellectual property (IP).
Financial results
| Metric | Q1 2017 | Q1 2016 |
|---|---|---|
| Revenue | $3.170 million | $2.950 million |
| Gross profit / margin | $1.373 million / 43% | $1.156 million / 39% |
| Operating expenses | $4.841 million | $6.140 million |
| Operating loss | $3.468 million | $4.984 million |
| Net loss | $3.565 million | $5.093 million |
| Diluted loss per share | $0.05 | $0.09 |
| Cash used in operations | $3.866 million | $4.457 million |
Revenue grew 7% year over year. New-product revenue increased 28% to $1.912 million, while mature-product revenue declined 14% to $1.258 million. Gross margin improved to 43% from 39%, which management attributed mainly to product mix and the addition of higher-margin eFPGA IP licensing revenue. Operating expenses fell 21%, primarily reflecting strategic realignment and lower compensation-related costs.
Operating cash outflow was partly driven by a $948,000 inventory build and a $968,000 increase in accounts receivable. Capital expenditures were $15,000; operating and investing cash outflows together were $3.881 million.
Balance sheet and liquidity
- Cash and cash equivalents were $26.674 million at April 2, 2017, up from $14.870 million at January 1, 2017.
- Total liabilities were $11.089 million. Debt included $6.0 million drawn on the revolving credit facility and $213,000 in capital leases.
- Financing activities provided $15.685 million, mainly from a March offering of 11.3 million shares. Net proceeds were approximately $15.8 million; the offering substantially increased shares outstanding.
- The $6.0 million Silicon Valley Bank line was fully drawn and due to expire September 25, 2017. QuickLogic reported compliance with its covenants at quarter-end.
Outlook, risks, and notable items
- Management expects cash, cash equivalents, and available credit to fund operations and capital expenditures for at least the next 12 months. It also said losses were expected to continue through at least fiscal 2017. No specific revenue or earnings guidance was provided.
- Longer-term liquidity depends on sales growth from new products, access to capital, and renewal or replacement of the credit facility. Management cautioned that additional capital may not be available on acceptable terms and that insufficient sales or financing could harm operations and covenant compliance.
- QuickLogic began recognizing eFPGA IP licensing revenue in Q1 2017. Because it lacked vendor-specific fair-value evidence for arrangement elements, it recognized revenue ratably over the contract performance period.
- Revenue and customer exposure were concentrated: Samsung represented 22% of total revenue; one distributor represented 30%. The company also depends on a limited number of manufacturing suppliers and had $1.5 million of wafer and finished-goods purchase commitments.
- Management noted that mobile-market products may have shorter life cycles and greater inventory-obsolescence risk. The filing also describes ordinary-course litigation risks but does not identify a specific material pending case.
- After quarter-end, stockholders approved an increase in authorized common shares from 100 million to 200 million and additional share reserves for employee plans.
Important facts for investors to verify
- Whether new-product and eFPGA IP revenue can grow enough to offset declines in mature products and support lower operating losses.
- How much of reported revenue growth and margin improvement is attributable to IP licensing and whether that performance is repeatable.
- The credit facility’s renewal or replacement before its September 2017 expiration, and continuing covenant compliance.
- Cash burn, inventory and receivables trends, wafer commitments, and exposure to concentrated customers and suppliers.
- The dilution impact of the March equity offering and increased authorized share capacity.