QuickLogic Q2 2023 Earnings Call Transcript

Quartr
Provided by Quartr
August 14, 2023

There are 7 speakers on the call.

Operator

Ladies and gentlemen, good afternoon. At this time, I would like to welcome everyone to QuickLogic Corporation Second Quarter Fiscal 2023 Earnings Results Conference Call. As a reminder, today's call is being recorded for replay purposes through August 22, 2023. I would now like to turn the conference over to Ms. Allison Ziegler of Darrow Associates.

Operator

Fiscal. Ms. Ziegler, please go ahead.

Speaker 1

Thank you, 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 stock 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, the company's future evaluation systems, broadening the number of our ecosystem partners and expected results and financial expectations for revenue, 2019, operating expenses, profitability and cash. Actual results or trends may differ materially from those discussed today. For more detailed discussions of the risks, 2nd quarter fiscal 2020 and assumptions

Speaker 2

that could result in these

Speaker 1

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. Call. In today's call, we will be reporting non GAAP financial measures. 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.

Speaker 1

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. Call. Such information may be deemed material information and QuickLogic may use these channels to comply with its disclosure obligations under Regulation FD. Call.

Speaker 1

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

Speaker 3

Thank you, Allison. Good afternoon, everyone, and thank you all for joining our Q2 fiscal 2023 financial results conference call. As noted in the press release issued after market close, our 2nd quarter 2023 results were negatively impacted by the timing of the award for the next phase of the large eFPGA contract announced last year. The first phase of the contract, which was $6,900,000 has been completed successfully. I am pleased to share that this next phase with a total value of $15,000,000 is now in place and will begin generating revenue this quarter with revenue extending into 2024.

Speaker 3

This second phase is the same total value, revenue recognition timing and duration we had been expected to finalize during Q2. With receipt of this new contract and new business and other end markets that we are rapidly converting from our sales funnel, fiscal 2020. We remain on track to grow total 2023 revenue by more than 30% over 2022. We also believe we will report non GAAP profitability for Q3 and Q4 as well as non GAAP earnings quarter for the full year 2023. With that opening, let's get into the details.

Speaker 3

On the continued strength of our numerous eFPGA IP based opportunities, including a portion of the strategic RadHard FPGA program, our sales funnel grew to over $140,000,000 the largest in QuickLogic's history. Included in this number are deals for both eFPGA IP as well as being a storefront for semi custom FPGA development that incorporates our eFPGA IP. These deals span numerous foundries, process technologies and end markets. One of our unique strengths continues to be that we offer a full spectrum of solutions ranging from eFPGA IP all the way to full chip designs which incorporate that IP. As a reminder, we have multiple revenue sources within this product category.

Speaker 3

The primary ones being design services, IP licenses, royalties and finally device sales via our storefront. Design services is how we monetize the R and D resources to develop our IP or bespoke devices for our customer, typically recognized as we do the engineering work. IP licenses are typically one time events recognized with the delivery of our IP to a customer. Royalties are typically a percentage of the final device ASP and the value contributed by our IP that is recognized as our customers ship devices that include our IP. 2017.

Speaker 3

And finally, storefront simply means that our customer is buying a finished device from us that is designed to their specifications. In doing so we enhance and expand our customers' capabilities by providing additional expertise and depth as well as access to the supply chain we have had in place for decades. 2017. More than ever before, the fact that we've been a trusted and reliable supplier of FPGA devices is one of the many reasons why we are winning opportunities to be more In November of 2022, I shared that we had taped out a new device for a customer that incorporates our eFPGA IP. Revenue from the shipment of these test ships to our end customer was recognized during Q2.

Speaker 3

Additional engineering work with this design win other than I believe it represents tens of 1,000,000 of dollars in potential device revenue starting in a couple of years. As mentioned on our previous call, one of the contributors to our pipeline growth is a new government focused EFPGA IP based contract targeting a 12 nanometer process node. This is our first contract for the 12 nanometer process node. We recognized initial revenue from this contract in Q1 and expect to recognize additional revenue throughout 2023. Quarter.

Speaker 3

Furthermore, during the previous call, I mentioned that we believe this contract was our first of several during this fiscal year. In fact, we now have multiple new opportunities for our 12 nanometer eFPGA IP totaling several $1,000,000 Moving to SensiML. As we mentioned last quarter, the top tier semiconductor company that is integrating a private label version of a SensiML powered solution to address its customers' demand across its broad line of microcontrollers is nearing their product launch. Call. This private labeling of the SensiML toolkit provides significant revenue potential as a result of the company's large installed customer base and sales force.

Speaker 3

Quarter. While we remain conservative on what this could mean for QuickLogic, we believe it has the potential to move the needle. As I have noted in the past, this is not an exclusive relationship, which means our engagements with other microcontroller companies will continue. Moving to chiplets. We continue to see customer interest in an eFPGA enabled chiplet.

Speaker 3

We plan to issue a press release in the coming weeks related to a specific collaboration on an eFPGA enabled chiplet with a partner company, targeting the Edge IoT and AI markets. We expect to generate initial revenue this fiscal year from chip related design services and or IP Licensing. Concerning our mobile phone business, much like other semiconductor suppliers to the mobile market, quarter, we are still seeing softness in demand likely through the end of this fiscal year. However, we anticipate a rebound once inventory is balanced 2019 as we have been informed that our EOS S3 will be used in new smartphone models that will ship well into 2024. Finally, we are forecasting flat revenue in our Display Bridge and Mature Product segments for Q3 with slight improvements forecasted for fiscal Q4.

Speaker 3

Before turning the call to Elias, I want to reiterate our revenue outlook for Q3 and the remainder of fiscal 2023. Despite the push out of revenue from the 2nd phase of the eFPGA IP contract we mentioned earlier, we expect its revenue contribution and the accelerated conversion of our diverse and growing pipeline to fully offset the shortfall in Q2 revenue. This emboldens our confidence that we are still on track to report greater than 30% annual revenue growth that we discussed earlier in the year. Fiscal 2020. We are also still on track to turn the corner to profitability starting in the Q3 of this year and based on our current forecast, we expect to report 2023.

Speaker 3

Let me now turn the call over to Elias for a review of the financial results. Elias, please go ahead.

Speaker 2

Thank you, Brian, and good afternoon, everyone. Our performance in Q2 was below our expectations 2017 with revenues of $2,900,000 and a non GAAP net loss of $1,700,000 due to the timing and the execution of the contract Brian mentioned. With this contract in place and the accelerated conversions of opportunities in our sales funnel, We continue to believe we will grow our revenue by more than 30% in fiscal 2023 and report non GAAP profitability for the last two quarters as well as year 2023. Let me now review the results for the Q2. As I said, revenue in Q2 was $2,900,000 a decrease of 29.3% compared to the Q1 of 2023 and a decrease of 35.7% compared to Q2 of 2022.

Speaker 2

Within our Q2 revenue, Sales of new products were approximately $2,200,000 This compares with $3,100,000 last quarter, down 26.9 percent and $3,100,000 in the Q2 of 2022, down 28.7 2018. Mature product revenue was approximately $700,000 compared to $1,100,000 last quarter and $1,400,000 in Q2 last year. Non GAAP gross margin in Q2 was 44.2% compared with 59.7% in the Q1 of 2023 and 58.6% in the Q2 of 2022. The decline in gross margins from the Q1 resulted from the lower revenue base and a change in the mix of deliverables within eFPGA related revenue quarter to a higher percentage of professional services. Non GAAP operating expenses in Q2 2023 were approximately $2,900,000 The OpEx for Q2 was in line with our prior guidance due to continued disciplined expense controls.

Speaker 2

This is approximately flat with operating expenses of $2,900,000 last quarter and $2,800,000 in the 2nd quarter a year ago. Non GAAP net loss was $1,700,000 or loss of $0.12 per share based on 13,700,000 shares. This compares to a net loss of $500,000 or 0.04 dollars per share last quarter and a net loss of 47 2017.0 0 dollars per share in the Q2 of 2022. Total cash at the end of Q2 was $20,600,000 compared with $19,200,000 at year end. The continued investment to support the new design wins we have discussed was offset by the approximately 2.3 2018 March at near market rates from existing shareholders.

Speaker 2

Additionally, timing considerations related to cash received from customers contributed to net higher utilization of cash from operations. In Q2 2023, we had 3 customers that each accounted for 10% of our revenue. Now moving to our guidance for our Q3 of fiscal 2023, which will end on October 1, 2023. Revenue guidance for Q3 is approximately $6,500,000 plus or minus 10%, due to the reasons Brian already outlined. Revenues expected to be comprised of approximately $6,000,000,000 of new products and $500,000 of mature products.

Speaker 2

Based on this revenue mix, non GAAP gross margin for the quarter will be approximately 75% plus or minus 5 percentage points. 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 3,000,000 2023 dollars, plus or minus 10%. On a quarterly basis, during 2023, We believe OpEx will maybe lower the $3,000,000 range with occasional increases to support new programs. After interest expense, other income and taxes, we currently forecast that our non GAAP net income for Q3 would be approximately $1,300,000 to $2,200,000 or net income of $0.09 to $0.16 per share quarter based on roughly 13,900,000 shares outstanding.

Speaker 2

The difference between our GAAP and non GAAP results excuse me, in Q3, we expect this compensation will be approximately 800,000 As a reminder, there will be movement 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. Given the continued investment to support the new design wins that we have discussed at the timing of certain expenses and anticipated 2017. At the midpoint, we expect cash usage to be below $1,400,000 this quarter. As we stated earlier, with the new large design quarter.

Speaker 2

We should see sequential improvement in revenues in the back half of the year leading to positive non GAAP earnings. Thank you very much for joining this call. With that, let me now turn the call back to Brian for his closing remarks.

Speaker 3

Thank you, Elias. I am incredibly excited about our progress and the momentum that we are building. Operating model will ensure that revenue falls efficiently to our bottom line. The $15,000,000 contract we recently finalized is the largest contract by far in the history of QuickLogic. However, that is just a part of the story for the second half of twenty twenty three.

Speaker 3

2019. As important to our sustainable growth is the acceleration of conversions of our sales funnel opportunities into new contracts. Quarter. This will further drive revenue growth and end market diversification. I would like to again thank all our key That completes our prepared remarks.

Speaker 3

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

Operator

Thank you. Conference Call. Conference Call. One moment please while we poll for questions. Thank you.

Operator

Our first question comes from the line of Martin Yang with Oppenheimer. Please proceed with your question.

Speaker 4

Hi, thank you for taking my question. First question for Ron is, Is there any other contract push out or delays of revenue recognition in the second quarter Aside from the second phase of 1 Verintock contract?

Speaker 3

No, this is the only one, Martin.

Speaker 4

Got it. And second question regarding this contract particularly is, do you expect pretty Steady roll of revenues coming from this line in the next few quarters. Are they going to be recognized Pretty equally or steadily in the next couple of quarters.

Speaker 3

Yes, I think the visibility we have in the contract is that it's I'll call it steady revenue. We're not going to say exactly the number Of quarters that it's active for, because of the nature of the contract, we're not allowed to discuss that, but it will provide a steady flow of revenue that we can recognize across that period, Which led into, our confidence in going out and saying not only the Q3 revenue guidance, but also the outlook for the remainder of the year being Solid.

Speaker 4

Got it. And the last question from me is your view on the FlipBridge and smartphone revenue exposure, has your visibility or expectations changed versus last quarter?

Speaker 3

Yes, I think last quarter when I talked about smartphone, we thought maybe they would go through their inventory digestion completely and we can start to see some recovery in Q4. I think now we'll see that their digestion is going to take the remainder of the year. They're still taking products from us because they don't have inventory of all the SKUs for phones. So we are shipping some devices for revenue today in fact. So we think that the recovery is just probably going to take until the end of the year.

Speaker 3

And like I said, we're designing a new model. So once they do digest everything 2019 that are needed for those new models and we're going to start shipping for those as well. And so that visibility is there. That's on the smartphone side. You also asked about Display Bridge, Which are largely different markets.

Speaker 3

So on the display bridge, it's essentially what I'll call More like a cash cow opportunistic business. So as we get new design opportunities, we can fulfill them from inventory, which tends to be a benefit for some of these customers. And so from last quarter, our outlook hasn't changed. In fact, we've recently had opportunities, new ones come into the funnel for the display bridge for more consumer oriented products. And we're engaged in those opportunities because we do have that inventory position.

Speaker 3

But I think from a macro level, my outlook has not changed on the display bridge. And as we grow these other parts of the business like embedded FPGA, the display bridge is going to become a smaller and smaller percentage of the total and that's a good thing.

Speaker 4

Got it. Thank you, Brian.

Speaker 3

Thanks, Martin.

Operator

Thank you. Our next question comes from the line of Rick Neaton with Rivershore Investment Research. Please proceed with your question.

Speaker 5

Good afternoon, Brian and Elias. In talking about this new phase of the contract, Is that $15,000,000 included in the $140,000,000 funnel that you described In the press release and your remarks.

Speaker 3

No, that's a good question, Rick. I didn't cover the puts and takes of that. So the 140,000,000 There's a net value of the funnel. And I think I said publicly as what things are in there was not all of The larger EFPJ contract, some percentage of it was. And so as we close this $15,000,000 that comes out What was the $125,000,000 funnel, which means we had to add quite a bit more to get to net $140,000,000 And in fact, we have done that.

Speaker 3

So there's been Quite a bit of addition in this last quarter to the funnel so that it is net 140, taking into account this 15 moved from funnel into booked business at this point?

Speaker 5

So there was approximately a $30,000,000 addition to the funnel and then A $15,000,000 approximately subtraction for this new contract. Yes. Okay.

Speaker 3

Okay. Exactly.

Speaker 5

Is this contract front end loaded so you can recoup in Q3 The revenue that you didn't get in Q2?

Speaker 3

It's not front end loaded. It's spread across the term of the contract. So don't think of it as a recoup in Q3. Think of it that This was the Q3 number we essentially had planned to be in place and the contract just shifted the timeline. So the The start of it shifted and so the end of it also shifts, which means more revenue in the future as well.

Speaker 3

So that's the way to think about it, like a sliding window as opposed to Squishing into Q3. This Q3 number is what we thought we were going to be doing before with the contract already in place prior.

Speaker 5

Okay. And so your Q4 number is going to be about the same too, the way it looks now From this contract. Is that what you're saying?

Speaker 3

Yes. We have a very good idea of what Q4 is going to look like and also into 2024 what that will look like from this contract, Which is all factored into again why we are affirming on this call expectations for full year profitability and the greater than 30% revenue growth because now We have the visibility of that in an actual executed contract. Okay.

Speaker 5

Thanks for that clarity. So if I'm processing your numbers, that means you have another 2,000,000 $20,000,000 approximately of revenue that you expect to receive in the second half to replace The approximately $2,000,000 of revenue expected to receive in Q2, is that what you're saying? And that this is coming From the accelerated sales funnel and not from the contract. Is that what you're saying?

Speaker 3

Yes, we have other things that are replacing that $2,000,000 that shifted out of Q2. Our internal model actually was Higher than what we had given as an outlook on the last call. So we had buffer in there to account for anything like this that would happen, Which is why we didn't have to change the 30% or greater than 30% number. But there are other things besides the Large efpga contract we just talked about, the $15,000,000 one that are also contributing to revenue growth in the second half of this year.

Speaker 5

Okay. Thanks for that color. Now In terms of what you mean by substantial non GAAP profitability, are you saying Something along the line of Q3 times 2 Offset by the non GAAP net losses in the first half, is that basically what you're saying? Can you give any more color what you mean by substantial?

Speaker 2

Well, we don't Deep into the read of the year, Rick, but I'll tell you this, just look at it this way, we missed Q2 for sure, mainly because of that particular One contract we're counting on. What you look at is the second half will be profitable On a non GAAP basis, the EPS would be substantially better than the first half. So I don't think you should be calculating and looking at it as 2 times the 3rd or 2 times 3. I think it's more like Probably one of the few times that the company will stand out and say it has made GAAP profitability, I mean non GAAP profitability in Q3.

Speaker 5

Right. But you said substantial non GAAP profitability for the full year.

Speaker 2

Well, when you look at that's what I'm saying when you compare the second half to the first half, of course, it's substantial because the first half is losses.

Speaker 6

So going

Speaker 2

full GAAP full non GAAP profitability It's a huge step for the company, especially a company of size.

Speaker 3

Okay. So you're saying is it

Speaker 5

something Go ahead.

Speaker 3

Let me just put it in my own words here. The EPS for the year we're forecasting to be not just The penny, not just the nickel, something north of that for the year. Correct me if I'm wrong, Les.

Speaker 5

Yes. Okay. Thank you. One last question about the balance sheet, Elias. There's a big increase in property and equipment of $1,700,000 between Q1 and Q2.

Speaker 5

Can you provide some detail on that?

Speaker 2

You mean on the statement of the expectation?

Speaker 5

No, on the asset on your assets. You appear to have bought a lot you appear to have bought 1,700,000 Dollars of some assets, can you?

Speaker 2

Yes, yes. Well, these assets Well, let's put it this way. This is a classification change, okay? What it is, is that when you buy an asset, A tool, for example, or software and you bring into the company to be worked on. When that thing is fully functional, You as a company on the GAAP rule can basically classify that as an asset over a certain period.

Speaker 2

So if you remember back when I joined a year and a half ago, I have been saying this every quarter that many of our classifications are changing or could be up and down mainly because of this sort of classification. And now we believe that what We're doing is a correct thing, right? Based on the GAAP, again, you can classify these particular tools as an asset. That's why you see that big difference. We didn't go out and take $1,700,000 and bought something that cost $1,700,000 but the total assets of These tools or working software are now classified as an asset.

Speaker 5

Okay. Thanks for the clarity on that Elias.

Speaker 2

Of course.

Speaker 5

And thank you, Brian and Elias for giving me the chance to ask some questions.

Speaker 2

Of course. I will. Thank

Operator

you. Our next question comes from the line of Richard Shannon with Craig Hallum. Please proceed with your question.

Speaker 6

Thanks, Brian and Elias for taking my questions as well. Let's see here, a couple of questions maybe following up some prior ones here. I may have missed part of your responses and some questions earlier that while I was trying to work through my model here. But To get 30% growth here, hitting the 3rd quarter revenue number implies a decent growth here, like in the range of $7,500,000 for the 4th quarter. And I guess I thought I heard a question earlier suggesting was flat and I thought my math sounds right here.

Speaker 6

So am I doing the math right here that the 4th quarter revenues you're Seeing at

Speaker 3

least $7,500,000 Yes, I don't think we were trying to imply flat revenue in Q4. It's We're forecasting sequentially up for Q3, so that we can achieve the greater than 30% a year.

Speaker 6

Okay. Okay. That's what I was calculating too. So just want to make sure on that one. Let's see, a question on the pipeline.

Speaker 6

And Brian, I appreciated your response The prior questions here about the $15,000,000 contract taken out of the pipelines, you're adding in that $30,000,000 So I wonder if you could characterize The additions to this, I'm assuming most if not all of it's related to embedded FPGA or maybe some chiplets in there. But also if you could characterize the degree to which it is IP licensing royalties versus any storefront additions.

Speaker 3

So firstly, we don't forecast any royalties in our sales pipeline. So 0 of the $140,000,000 or anything prior is related to royalties. The new things that we were adding into the funnel Since the last call, there is one specific design that would involve being a storefront for an FPGA type device for the industrial market. There is another one for the defense market. There is a handful of embedded FPGA IP opportunities.

Speaker 3

I would say the mix is probably half defense and half non defense. And these Also includes several different process technologies. Most of the ones actually are covered by what we already have today From a supportive foundry process perspective, we're in design at this point. And then there is Some new opportunity coming in from as part of that 140 on the device side of the business. Martin was asking about display bridge and so Some of the opportunity coming on the consumer is falling into the display bridge for that.

Speaker 3

But again, not a very large percentage of that increase is from the display bridge. It's really Highly driven by all these different eFPGA IP deals. There is interest in a chiplet in part of that growth, which is why we felt like it's the right time to put out a press release with a company that we're intending to collaborate with in That way we can talk with more customers about it without getting under NDAs. And then lastly, there is SensiML as part of the funnel growth. But again, since the magnitude of a SensiML contract is not the same scale as the 6 and 7 and now 8 digit, eFPGA deals.

Speaker 3

The SensiML part of the funnel is not the big part of the growth. It's really the other aspects of the business.

Speaker 6

Right. Okay. And just to clarify, I'm not sure if it was implicit in how you described some of these pieces here, but is there anything related to 12 nanometer Opportunities you're talking about?

Speaker 3

Yes. There is. There were a, there is one report that we're doing now that we're intending to wrap up this quarter for 12 nanometer for a lead customer. And then since the last call, we've had multiple come in on 12 nanometer new ones that we believe we can close and actually have contribute to revenue in this calendar year, excuse me, this fiscal year as well. And I'm intentionally being vague on foundry when When I'm answering these questions around 12 nanometer, but definitely there's been some movement on 12 nanometer in the last quarter, positive movement.

Speaker 6

Okay. That is helpful. Thanks for that, Brian. I appreciate you giving us some clues on what you're Thinking about for the Q4. So true to form here, I'll kind of push the envelope and have you maybe chat a little bit about next year.

Speaker 6

And I think what most people are interested in seeing you consistently profitable. And it sounds like the funnel additions here look very nice. So, but I'd love Your thoughts on the degree to a great confidence you have, they're going to be sustainable growth and growing and be profitable next year or each quarter next year.

Speaker 3

So I'm highly confident in that Richard and the reason is because now that we're closing these larger opportunities into contract stage, we can now start to see more of a layering effect, so that we're doing multiple of these things, in parallel, So that you actually could see that revenue growing and growing every quarter. I want to emphasize that the $15,000,000 defense contract is great. It goes into Some point in 2024, we fully expect that's going to be continuing beyond that. But there's going to be other things that are layering on top of that, Like these 12 nanometer ones and some of the other ones I said in the funnel. And at some point next year, we'll start to see other things kick in to contribute to revenue Like royalties from the designs that we had won previously.

Speaker 3

And so with all of those opportunities in the funnel and the rate at which we're hitting these, that's what's Giving me the conviction that we will be sustainably profitable once we cross the threshold. As you know, I've been waiting a long time for this as I know investors have So this profitability moment and it's our intention and our plan and our forecast to stay there.

Speaker 6

Okay.

Speaker 3

Yes, I'll leave it at that.

Speaker 6

Okay, perfect. That's great to hear. And the last question, I'll jump out of line here. I think Elias, and maybe A question for both of you, Elias. I think you talked about OpEx kind of in the $3,000,000 number with potential, I don't know, bubbles 2nd quarter fiscal 2nd quarter fiscal 2nd quarter fiscal 2nd quarter fiscal 2nd quarter fiscal 2nd quarter fiscal 2nd quarter

Speaker 3

fiscal 2nd quarter fiscal 2nd quarter fiscal 2nd quarter fiscal 2nd quarter fiscal 2nd quarter fiscal

Speaker 6

2nd quarter fiscal 2nd quarter fiscal 2nd quarter fiscal 2nd quarter fiscal 2nd quarter fiscal

Speaker 3

2nd quarter fiscal 2nd quarter

Speaker 6

fiscal 2nd quarter fiscal 2nd quarter. And a good growth outlook suggests you might open the spigot up a little bit at some point. Can you just talk about the magnitude of what you may be thinking there and over what time period we might see that?

Speaker 2

I don't think we'll see it in 2023. I think we're going to keep it at $3,000,000 or so in OpEx quarter. I think next year we will see it when we start growing with people, a different location where we will hire engineers And invest more in the business of software or tools that we need to buy, right? You basically use your cash flow to do smart buys. In this regard, I would say even if we get to 3,500,000 OpEx, which would require us to hire a lot of people, we're still profitable, Richard.

Speaker 2

So I'm not worried or panicked yet about the increase in OpEx. I see that coming sometime next Yes, maybe where it goes up to maybe 3.3, then 3.5, then stays around 3.5 for a while and then that's about it. So No need to rush into spending.

Speaker 3

Sorry, go ahead, Richard.

Speaker 6

No, please go ahead, Brian.

Speaker 3

So the color I'd like to add on that is that just in terms of philosophy. As a philosophy, we always look to outsource certain things until a task or a role is needed on a full time basis. And so we have been hiring in fact recently in the last 6 months or so for very specific roles, very sort of rifle shot approaches to roles that we know will increase our capacity to do more or it will increase the sales funnel at a faster rate, okay, in terms of efficiency. And so we have made those hires. There is a role that we are hiring for right now.

Speaker 3

If you look at our careers page for sales manager for United States for North America. And a lot of that is coming from the fact that we think we have the recipe now, to engage and close these IP deals especially And grow the funnel and we're at the point now where we have so much coming in. We know that we need to hire more of the sort of frontline people like a sales manager to close and expand that even more. And so that's just the extra color I want to make. So everybody is aware, yes, we're going to hire.

Speaker 3

It's built into the OpEx model and I think we're very careful About choosing the right people, location and everything to make sure that it's contributing towards the sustainably growing future. And And then one other thing I'll just add to that is there's sort of this notion of operating leverage, which is around How much gross margin or how many gross margin dollars are you generating for every dollar you spend of OpEx? And I think if you look back in that, those in our investor deck A couple of months ago, we were charting this so that people could actually see the high degree of leverage we are getting from our operating expenses. And I think it will be really nice to see that chart continuing like what we are announcing now for Q3 and for the year and for next year to just continue to see that Stay above the 1, which is what you want to be. We are definitely generating more gross margin dollars than you are spending on the OpEx side.

Speaker 6

Thanks. Okay, excellent. Thank you, Brian. Thanks a lot. That's all for me.

Speaker 3

Thanks, Richard.

Operator

Thank you. Ladies and gentlemen, that is all the time we have for questions. I I would like to turn the floor back over to CEO, Brian Faith for closing comments.

Speaker 3

Yes. I want to thank you for participating in today's call and for your continued quarter. We look forward to speaking when we report our Q3 fiscal 2023 results in November. We will be attending the following conferences Q2 fiscal Q3. Over the next few months, including presenting at the Trusted and Assured Microelectronics Awareness Day in McLean, Virginia later this week Jefferies later this month H.

Speaker 3

C. Wainwright on September 12 and Craig Hallum on November 16. Have a great day. Thank you.

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