QuickLogic Corporation — FY2016 Form 10-K
Business context and reporting period. QuickLogic is a fabless semiconductor company developing low-power SoCs, FPGAs, embedded FPGA intellectual property, software and sensor-processing solutions for mobile, wearable and IoT devices. FY2016 ended January 1, 2017; the filing was signed March 9, 2017. The filing covers the full fiscal year, not only Q4.
Financial performance
| Metric | FY2016 | FY2015 |
|---|---|---|
| Revenue | $11.421 million | $18.956 million |
| Gross profit / margin | $3.773 million / 33% | $7.545 million / 40% |
| Operating expenses | $22.575 million | $25.058 million |
| Operating loss | $18.802 million | $17.513 million |
| Net loss | $19.148 million | $17.848 million |
| Basic and diluted loss per share | $0.29 | $0.32 |
| Cash used in operating activities | $15.259 million | $11.829 million |
FY2016 revenue fell 40%. New-product revenue declined 53% to $5.622 million, while mature-product revenue declined 16% to $5.799 million. Cost of revenue was 67% of sales versus 60% in FY2015. R&D was $12.265 million, or 107% of revenue; SG&A was $10.310 million, or 90% of revenue.
Q4 FY2016, unaudited: Revenue was $2.945 million, gross profit $0.950 million (about 32%), operating loss $3.752 million, net loss $3.858 million and loss per share $0.05. Revenue rose from $2.809 million in Q3 FY2016 but was below $3.630 million in Q4 FY2015.
Liquidity, debt and balance sheet
At January 1, 2017, cash and cash equivalents were $14.870 million, working capital was $9.042 million, and total assets were $21.844 million. The company reported $6.0 million outstanding on its revolving credit facility at 3.75%, plus $209,000 of capital lease obligations. The facility was due to expire in September 2017; further borrowing and renewal were subject to lender requirements and covenants. QuickLogic said it was covenant-compliant at year-end and believed available cash and financing would fund operations and capital expenditures for the next 12 months.
Financing cash flow was $12.947 million, including $8.8 million net proceeds from a March 2016 stock offering and $4.0 million of additional borrowing. Cash declined by $4.266 million during the year. Contractual obligations and commercial commitments totaled $11.042 million, including the $6.0 million credit line, $1.636 million of wafer commitments and $2.018 million of operating leases.
Changes, outlook and risks
- Lower shipments of ArcticLink III to Samsung and lower connectivity-product sales drove much of the new-product decline. Mature-product sales also weakened, particularly in aerospace, test and instrumentation. Management anticipates further declines in tablet and mature-product revenue.
- Management expected losses to continue through at least FY2017 while it invested in product development. It anticipated eFPGA IP licensing revenue beginning in FY2017 and planned to deliver ArcticPro eFPGA IP during 2017. The filing provides no quantified revenue or earnings guidance.
- Customer concentration is significant: Samsung accounted for 33% of FY2016 revenue and 29% of Q4 revenue; two customers, including Samsung, represented 48% for the year and 39% in Q4. Orders may be short-notice, rescheduled or canceled.
- Key risks include sustained operating cash burn, dependence on new-product design wins, pressure on margins and selling prices, inventory obsolescence, reliance on single or limited-source manufacturers, and the credit facility’s September 2017 expiration. The company also had a $40 million shelf registration available for future securities offerings.
- FY2016 included $296,000 of inventory write-downs and a $368,000 equipment write-off. There were no new restructuring charges; the remaining FY2015 restructuring liability was paid in FY2016. QuickLogic reported no material pending legal proceedings.
Important facts for investors to verify
- Whether new-product and eFPGA design opportunities convert into recurring revenue sufficient to reduce losses and cash burn.
- Customer concentration and future Samsung orders, including the effect of declining tablet shipments.
- Cash runway, covenant headroom, remaining borrowing availability and renewal or replacement of the credit facility before September 2017.
- Gross-margin trajectory, inventory commitments and potential obsolescence or additional write-downs.
- Potential dilution from further equity financing; QuickLogic issued 10 million shares in 2016 and had a $40 million shelf registration.
The independent auditor issued an unqualified opinion on the FY2016 financial statements and concluded internal control over financial reporting was effective. Management’s liquidity expectations remain dependent on revenue performance and access to financing.