QuickLogic Q3 2023 Earnings Call Transcript

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Provided by Quartr
November 14, 2023

There are 6 speakers on the call.

Operator

Ladies and gentlemen, good afternoon. At this time, I'd like to welcome everyone to QuickLogic Corporation's 3rd Quarter Fiscal 2023 Earnings Results Conference Call. As a reminder, today's call is being recorded for replay purposes through November 21, 2023. I would now like to turn the conference over to Ms. Allison Ziegler of Darrow Associates.

Operator

Ms. Zigler, please go ahead.

Speaker 1

Thank you, operator, and thanks to all of you for joining us. Our speakers today are Brian Faith, President and Chief Executive Officer and Elias Nader, Senior Vice President and Chief Financial Officer. As a reminder, some of the comments QuickLogic makes today are Forward looking statements that involve risks and uncertainties, including but not limited to stated expectations relating to revenue from new and mature products, Statements pertaining to QuickLogic's future performance, design activity and its ability to convert new design opportunities into production shipments, Timing and market acceptance of its customers' products, schedule changes and production start dates that could impact the timing of shipments, For more detailed discussions of the risks, uncertainties and assumptions that could result in those differences, please refer to the risk factors discussed in QuickLogic's most recently filed periodic reports with the SEC. QuickLogic assumes no obligation to update any forward looking statements or information, which Speak as of the respective dates of any new information or future events. In today's call, we will be reporting non GAAP financial measures.

Speaker 1

You may refer to the earnings release we issued today for a detailed reconciliation of our GAAP to non GAAP results and other financial statements. We have also posted an updated financial table on our IR webpage that provides current and historical non GAAP data. Please note, QuickLogic uses its website, The company blog, corporate Twitter account, Facebook page and LinkedIn page as channels of distribution of information about its business. Such information may be deemed material information and QuickLogic may use these channels to comply with its disclosure obligations under Regulation FD. A copy of the prepared remarks made on today's call will be posted on QuickLogic's IR webpage shortly after the conclusion of today's earnings call.

Speaker 1

I would now like to turn the call over to Brian. Go ahead, Brian.

Speaker 2

Thank you, Alison. Good afternoon, everyone, and thank you all for joining our Q3 fiscal 2023 Financial results conference call. QA3 revenue of $6,700,000 exceeded the midpoint of our guidance, Nearly doubling year over year and increasing 128% sequentially. This growth was driven by new product sales, which increased by over 100 70% both sequentially and year over year. QuickLogic set a record for non GAAP gross profit margin achieving 78%, which exceeded the midpoint of the outlook we shared last quarter.

Speaker 2

Driven by strong gross profit and the inherent scalability of our business model, Non GAAP net income of $1,800,000 was an all time record for QuickLogic. Elias will share our outlook in a few minutes. That project will set another non GAAP net profit record in Q4, which will drive positive full year earnings for fiscal 2023. The strategic transformation we initiated in 2020 has enabled us to fully leverage the proprietary IP assets that we have developed over the last 30 years and execute a highly scalable and profitable business model. When compared to 2020, We expect to grow full year 2023 revenue by over 144%, non GAAP gross profit dollars by over 2 35% And with a 2% reduction in non GAAP OpEx, improved our operating leverage by nearly 2 44%.

Speaker 2

The bottom line here is our strategic transformation is delivering strong results and I believe the best is yet to come. Now I'll take a few minutes to highlight the initiatives and contracts that are driving our growth and success. First, we have continued to grow our sales funnel to a record $162,000,000 Included in this number are deals for both eFPGA IP as well as customer specific device development that incorporates our eFPGA IP. These deals span numerous Foundries, Process Technologies and End Markets. In August, we were awarded the $15,000,000 second phase of the strategic RadHard PGA contract that was initiated in 2022, bringing the total awarded so far to 22,000,000 The contract has the potential to extend through 2026 with a total potential value of $72,000,000 This second phase provided a significant contribution to our rebound in Q3 and expanded the scope of the contract to include a second foundry in addition to continuing our development efforts with our current foundry partner.

Speaker 2

In November 2022, I shared that we had taped out a new device for our customer that incorporates our eFPGA IP. Due to strict confidentiality requirements, I can't share more details on the specific design win. We are continuing to do development work with this customer and we are generating revenue from this design each quarter. We believe this customer could represent tens of 1,000,000 of dollars in potential device revenue starting in As mentioned on our previous call, contributing to our sales funnel growth Includes new government focused eFPGA IP based opportunities targeting a 12 nanometer process node. Initial revenue from one contract began in Q1.

Speaker 2

Furthermore, we announced the availability of our eFPGA PGA IP on the GlobalFoundries 12 LP process technology and we now have multiple new opportunities for this IP totaling several $1,000,000 The new 12 nanometer eFPGA solution is ideal for a wide range of applications, including 5 gs Infrastructure, Automotive Electronics, Aerospace and Defense, AIML Acceleration and IoT Devices. In late September, we announced that a leading technology company chose our eFPGA IP For GlobalFoundry's 22 FDX platform, we expect to deliver on this initial program this year. In total, during this quarter, we expect to be in development with 5 different process technologies spanning 4 different foundries. This is only possible through the proprietary automation of the Australis IP generator, which lets us create customized versions of our IP within 1 quarter from contract signing. Customers are increasingly seeing QuickLogic as the lowest risk path to a solution that meets their technical requirements, development schedule and target costs.

Speaker 2

The not so subtle point here As by lowering risk and shortening time to market, we save our customers money and that provides us with a meaningful competitive advantage. We announced the partnership with Zifera, a provider of hardware based cryptographic security solutions to provide Architects with a path towards securing their assets against the quantum threat, enabling them to stay one step ahead in the evolving landscape of cyber threats. With Xifera's standards based PQCIP, combined with the design flexibility of QuickLogic's eFPGA platform, Solution designers can cost effectively meet the rapidly evolving market demands for quantum resilience. Moving to chiplets. We recently announced a partnership with Yourchip to develop low power, low cost UCIE FPGA triplets optimized for Edge IoT and AIML applications.

Speaker 2

This opens new possibilities for a wide range of applications. The first chiplets could be available in early 2025. Concerning our mobile phone business, our lead customer has digested most of their EOS S3 inventory and we expect a slight rebound starting this quarter. Furthermore, we have been informed that our EOS S3 will be used in new smartphone models that will ship into 2025. Finally, we are forecasting slight improvements in our Display Bridge and Mature Product segments for Q4 and for fiscal 2024.

Speaker 2

Moving to SensiML, the top tier semiconductor company that has integrated a private label version of a SensiML powered solution to address its customers' demand across its broad line of microcontrollers has officially launched. This private labeling of the SensiML toolkit provides significant revenue potential because of the company's large installed customer base and sales force. As I have noted in the past, this is not an exclusive relationship and we will continue to engage with other microcontroller companies. Before turning the call over to Elias, I'd like to share my perspective on the key differentiators that are driving our wins, growth and our profitability. QuickLogic has been developing proprietary FPGA IP and delivering high volume commercial FPGA based device With this and our Australis IP generator that allows us to quickly target our customers chosen foundry and fabrication node, We can lower customer risk and shorten time to market in addition to providing unique and proprietary IP.

Speaker 2

We can also engage with customers at any level From providing a simple IP license to supporting development efforts and even to fully managing everything from fabrication to finished goods through our storefront program. Together, these benefits set us apart from the competition and have enabled both our rapid growth and now With that, let me now turn the call over to Elias for a review of the financial results and I will rejoin for our closing remarks. Alliance, please go ahead.

Speaker 3

Thank you, Brian, and good afternoon, everyone. Our performance in Q3 was exceptional, with revenue more than doubling from last quarter, Driving the business solidly into the black. As expected, our results benefited from higher eFPG IP license And professional services revenue as the next phase of the large eFPGA contract started up in the current quarter. Specifically, revenue in Q3 was $6,700,000 up 128% from the 2nd quarter and up nearly 93% from the Q3 of 2022. Within our Q3 revenue, Sales of new products were approximately $6,100,000 This compares to $2,200,000 last quarter, up 173 percent and $2,300,000 in the Q3 of 2022, up 171%.

Speaker 3

Material product revenue was approximately $600,000 compared to $700,000 last quarter and one $2,000,000 in Q3 last year. Non GAAP gross margin in Q3 was 78% Compared with 44.2 percent in the Q2 of 202349.8 percent in the Q3 of 2022. The increase in gross margins from the 2nd quarter resulted from the higher revenue level And a change in the mix of deliverables within eFPGA related revenue to a higher percentage of professional services as well as continued cost controls. Non GAAP operating expenses In Q3 2023, we're approximately $3,300,000 The OpEx for Q3 was slightly above our forecast due to somewhat higher R and D activity given the timing of executing on the large revenue contracts later in the period. This compares with non GAAP operating expenses of $2,900,000 last quarter and $2,500,000 in the 3rd quarter a year ago.

Speaker 3

Non GAAP net income was $1,800,000 or $0.13 per share, a record. This compares to a non GAAP net loss of $1,700,000 or $0.12 per share last quarter At a non GAAP net loss of $900,000 or $0.07 a share in the Q3 of fiscal 2022, Total cash at the end of Q3 was $18,600,000 compared with $19,200,000 at year end. In Q3 2023, we had one customer that accounted for 10% or more of our revenue. Now moving to our guidance for the Q4 fiscal 2023, which will end on December 31, 2023. Revenue guidance for Q4 is approximately 7,400,000 Plus or minus 10%.

Speaker 3

This will lead to revenue growth of approximately 30% for the full year of 2023. 4th quarter revenue is expected to be comprised of approximately $6,600,000 of new products and $800,000 of mature products. Based on this revenue mix, non GAAP gross margin for the quarter is expected to We will continue to see margin variances each quarter Due to product mix and volatility in cost of goods sold, our non GAAP operating expenses Will be approximately $3,500,000 plus or minus 10%. We believe OpEx will remain in $3,500,000 range with occasional increases to support new programs. Please keep in mind that given our industry, We may be required to reclassify certain expenses to COGS, which is cost of goods sold, I'll capitalize certain costs at times.

Speaker 3

The reclassifications are primarily related to labor and tooling for revenue contracts with customers. Capitalization will reduce OpEx and also change the timing for recognizing the corresponding expenses in COGS. This may cause variability in our gross margins and operating results. After interest expense, other income and taxes, We currently forecast that our non GAAP net income would be approximately $1,400,000 to $2,000,000 or $0.10 to $0.14 per share based on roughly 14,100,000 shares. This will allow us to report profitability for the full year with non GAAP net income of approximately $1,000,000 to $1,600,000 or $0.08 to $0.12 per share based on 13,700,000 shares.

Speaker 3

The difference between our GAAP and non GAAP results is related to non cash stock based compensation expenses. In Q4, we expect this composition will be approximately $800,000 As a reminder, there will be movements in our stock based compensation during the year and may vary each quarter based on the timing of grants to employees. Moving to the balance sheet, even with our continued investment To support the new design wins that we have discussed, including hiring critical engineering and sales roles, At the midpoint, we expect cash usage to be below $1,000,000 in Q4. These investments We are making in anticipation of strong growth in 2024 and timed with the signing of new contracts for design wins. We are also on track to be cash flow positive for the full year of 2024.

Speaker 3

With that, thank you very much. And I'll turn the call over now to Brian for his closing remarks.

Speaker 2

Thank you, Elias. With record non GAAP net profit, Q3 was clearly a historic quarter for QuickLogic and the stage is set for yet another new record this quarter. Since transitioning to a core IP business model only 3 years ago in 2020, We expect to grow total revenue by over 144%, gross profit dollars by over 2 35% and with a 2% reduction In non GAAP OpEx, grow our operating leverage by over 2 44 percent 2023. While I am very proud of what we've accomplished so far, what excites me is what lies ahead. The primary drivers for our growth over the last even beyond our sales funnel of $162,000,000 We believe these opportunities and others in our sites will fuel our continued growth in 2024 and beyond.

Speaker 2

While we will provide our full year outlook for 2024 during our year end conference call, I believe we are well positioned to grow total revenue by over 30% and report very solid non GAAP earnings per share with each quarter contributing to the profitability in 2024. Following the investments we are making during the second half of twenty twenty three to support anticipated growth in 2024, We expect to generate positive cash flow for the full year 2024. With that, I want to extend my appreciation to the shareholders That has supported our vision and to the team that has enabled these accomplishments. It is a thrill to work with you all. That completes our prepared remarks.

Speaker 2

Operator, I would now like to open the call for questions.

Operator

One moment please while we poll for questions. And our first question comes from the line of Richard Shannon with Craig Hallum. Please proceed.

Speaker 4

Well, great. Thanks, Brian and Elias for taking my questions and congratulations on a profitable quarter. I'm sure that's Welcome, Relief, and congratulations on all the hard work it takes to get to this point. Thanks, Richard.

Speaker 3

Thank you, Richard.

Speaker 4

You bet. I guess more of a tactical question to start off here. Just looking at the Q4 guidance here, pretty close to what you had talked about before, which is great to see here. I just want to get a sense to the degree to which this large government contract is driving the growth or some other dynamics here within the new product sales that are driving that?

Speaker 2

Obviously, the large U. S. Contract is a big percent of that revenue, but there are a couple other ones that are Materially contributing to the revenue growth in this quarter. I think in the prepared remarks, I alluded to us Doing design on several different process technologies and several different fabs and most of those would be Contributing to revenue in this quarter, some of which are new compared to last quarter. And then, the mature products and the sensor products to our smartphone customer are Picking back up again compared to last quarter.

Speaker 2

So I guess the net of that is that all things are up this quarter or forecasted to be up this quarter compared to last quarter. But the biggest revenue contributor is clearly government contracting number 1 and then a couple of the other IP contracts that we alluded to Contributing noteworthy to the revenue in the quarter.

Speaker 4

Okay. And maybe to follow-up on that last part there, Brian, a Couple of the newer contracts, as an example, since you've called us out a couple of times from last year or so, this Tape out that you referred to a year ago with a customer you can't really tell us all about other than seeing an opportunity for tens of 1,000,000 of dollars. Is that one of the contributors? You allude to what any of those other ones that are driving some of the increase here?

Speaker 2

That's definitely contributing that the one that was referred to earlier is the Product we taped out for. So that was definitely contributing in the quarter on some development work. We had announced During the last quarter, an IP win for a 22 FDX IP core, that is contributing in the quarter. And then we have some other smaller ones that are contributing as well that we think will contribute more meaningfully in 2024 Even though we're doing some of the work for those in this quarter.

Speaker 4

Okay, perfect. Thanks for That characterization, maybe let's jump into the pipeline here. Obviously, a nice increase from 140 to 162. I think one of the interesting comments from last quarter was and one asked the same question, so are there any parts of the pipeline They went into bookings here, so I kind of want to look at the gross adds of the pipeline here quarter on quarter?

Speaker 2

Yes. Gross adds to the pipeline, the majority of that add the net increase, which is just over $20,000,000 $22,000,000 is coming from defense opportunities that are now in the funnel. The non defense part of the funnel grew, I'd say, about 10% net from last quarter. And then So that's factoring in the fact that the large government contracts, some of that flowed out from funnel into booked business When we booked that new contract in August. So again, the large net increases are Primarily defense and about 10% increase coming from the non defense side of the business.

Speaker 2

Okay, fair enough. Thanks for the clarification. Sorry, let me just add one more bit of color there. Most of that is IP based opportunity, but there are some device opportunities coming in for that, some of which on the defense side are Coming from our anti fuse business, we're one of only 2 companies that I'm aware of that have anti fuse FPGAs and we are seeing Some opportunity for those, some new opportunity for those coming in. So it's good to see that.

Speaker 2

That's what gives us some of the optimism that the mature products for us will Rebound back next year and beyond.

Speaker 4

Okay. That's helpful, Brian. Thanks for that. One thing I want to follow-up with is, and I probably missed the exact language you gave here, but it sounds like related to In some manner to the large government contract you have engaged with the second foundry. Can you help us understand what's going on there?

Speaker 2

I'm not really able to say much about the government contract for obvious reasons, other than In this new $15,000,000 one that we are executing on now, we have added a second foundry to the mix from the first one. So we are Currently designing for 2 different foundries. And hopefully as press release This take time to approve once they are approved and we can issue those and it will become a little bit more clear who that is exactly, who that second one is.

Speaker 4

Okay, fair enough. We look forward to that. Last question, I'll jump out of line here. Understanding you're going to give us some more specific guidance into your view for 2024 in the next conference call. You're talking about some growth of, I think, 30 Sands year on year as well as being profitable each quarter here.

Speaker 4

Maybe if you can talk a little bit to the visibility that helps you make that comment so far that's Somewhat atypical for, well, I guess you're not a hardware company as much anymore, but I'd love to get a sense of Where that visibility and confidence is coming from enabling you to make that comment, Brian? Yes.

Speaker 2

I think if we divide up the business between device and IP services, on the device side, like I was saying, we're starting to see some improvement, in the bookings and visibility of Those are long standing relationships with those customers. So I think we're getting some decent visibility from them to make a comment that we think next year will be up and so that will contribute. On the IP side, there's a mix of these development contracts and pure IP licenses. And I think that the contracts tend to be multi month, multi quarter, sometimes even longer contracts. So the more we're operating under these contracts, I think the better visibility we have to what follows beyond the current contract Well into 2024.

Speaker 2

And then on the IP side, I think that the more customers we engage with, I wouldn't necessarily say the easier it gets, but the more understanding we have on how the flow goes with the customer, how they make their decisions, we come in, I think with more and more data that they need to see to make decisions and so it's making the process more understandable, more forecastable Yes. And we're just layering in so many of these into the sales funnel that it just increases our confidence that we're going to be able to grow 30 Just because at the end of the day, a sales funnel is a numbers game, right? The more numbers you have, the more qualified opportunities, the more it's going to flow out the bottom into book business. And so, Yes. Now that we're 3 years into this new business model, I think we're getting the handle about how those things move through, not to a point where I can give you a number that says, I need X in the funnel to generate Y 2 years from now in revenue, but I think enough that we can directionally say we think next year will be another 30% growth here on the top line for

Speaker 4

Okay, perfect. Thanks, Brian Elias. I'll jump on the line.

Speaker 2

Thanks, Richard.

Operator

And our next question comes from the line of Rick Neaton with Rivershore Investment Research. Please proceed.

Speaker 5

Thank you. Congratulations, Brian and Elias on a record quarter. It's been a long time coming.

Speaker 2

Thank you, Ezra. Thanks.

Speaker 5

I wanted to ask you a little bit about the 2nd aspect of the RadHard contract. For several quarters, you've talked about the contract having The $72,000,000 possible revenue flow by 2026, does that number include Revenue flow from the second foundry.

Speaker 2

Does the revenue flow include in the $72,000,000

Speaker 5

Does the $72,000,000 just include SkyWater, who's your foundry partner? Or does it include more than SkyWater? The second foundry?

Speaker 2

It would include more than just the SkyWater Foundry, which was the first foundry that we announced back in August of last year.

Speaker 5

Okay. I just wanted to get a better understanding of that whether SkyWater Only was part of the $72,000,000 possibility. Okay. And that dovetails into whatever's It's a conference call. Secondly, so what you're saying with Your smartphone customer is you now have an extra year of visibility into 1 more year of design ins of for QuickLogic products into that company's smartphone family.

Speaker 5

Is that what you're saying now?

Speaker 2

We do. We have meetings with them about once a quarter at the management level for planning and visibility purposes. And The net of that is, yes, we see the horizon pushing into 2025 now for when we'll be continuing to ship EOS S3 devices. And I think the other aspect of that, like I said earlier, is just that we're seeing their inventory that they took on earlier in the year being digested to the point where we're seeing Increased backlog and shipments for this quarter over last quarter. So I think we've sort of turned the corner on their inventory digestion.

Speaker 2

So we can project into 2024 to be a bigger year revenue perspective wise for smartphones for us than 2023.

Speaker 5

Okay. Thank you for that. In terms of the sales funnel and the quantification of the 100 $62,000,000 Does that include any expected product sales from storefronts In the future from your storefront operations or are you just talking basically eFPGA IP license and royalties

Speaker 2

So on the commercial side of the funnel, There are some device opportunities in there that we would be under the storefront, but it's I would say it's Not the lion's share of that and that would still be within sort of this 2 year horizon that we have on the sales funnel. It does not include Anything from like a defense storefront perspective, because frankly if I added that number to it, you would probably say, Brian, you're crazy. You can't say your funnel is $500,000,000 now. So we're keeping those things out of it for now. And any device storefront is related to either the mature NF These devices that we can sell immediately off of inventory or some of the commercial device business we have on EOS and that's it.

Speaker 2

Any of the defense storefront stuff That's more than a couple of years out is not included in that number for the reasons I just stated.

Speaker 5

Okay. So you're not We shouldn't expect defense storefront revenues before 2026 then I would assume Based on

Speaker 2

Yes and no. So the defense storefront for devices that are getting designed today like this government contract, then I agree with you. We're not going to sell devices until the contract is done from a development perspective and we said that that's like 2026 onward. If it's Defense Storefront for, again, standard products that we have today or those types of devices, then yes, it could happen before that Because we already have devices, we're not designing them, we're just designing them in, which is a very different task with the customer.

Speaker 5

Okay. Thanks, Brian. Appreciate it. I'll jump out of the queue and thanks for your answers.

Speaker 2

Thanks, Rick.

Operator

Thank you. Ladies and gentlemen, this concludes our question and answer session. Like to turn the call back to management for closing remarks.

Speaker 2

I want to thank you all for participating in today's call and for your continued support. We look forward to speaking when we report our Q4 fiscal 2022 results in late February or at some of the conferences we are attending over the next few months, including in person at the Craig Hallum Alpha Select Conference, which is being held on November 15 16, 2023. On December 11, 2023, we will be at the virtual Oppenheimer 5 gs Conference and the Needham Conference in early January 2024. Thanks again and have a great day. Thank you.

Operator

This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.

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