QuickLogic Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 27, 2024

There are 6 speakers on the call.

Operator

Greetings. At this time, I would like to welcome everyone to QuickLogic Corporation's 4th Quarter and Fiscal 2023 Earnings Results Conference Call.

Operator

As a reminder, today's call is being recorded. I would now like to turn the conference over to Ms. Allison Ziegler of Darrow Associates. Ms. Ziegler, 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, the company's future evaluation systems, broadening the number of our ecosystem partners and expected results and financial expectations for revenue, gross margin, operating expenses, profitability and cash. Actual results or trends may differ materially from those discussed today. 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.

Speaker 1

QuickLogic assumes no obligation to update any forward looking statements or information, which speak as of this respective date of any new information or future events. 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. We have also

Speaker 2

Allison?

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 Comenity company blog, corporate Twitter account, Facebook page and LinkedIn page as channels of distribution of information about its business. Some such information may be deemed material information and QuickLogic may use these channels to comply with its disclosure obligations under Reg 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. I would now like to turn the call over to Brian.

Speaker 1

Go ahead, Brian.

Speaker 3

Thank you, Allison. Good afternoon, everyone, and thank you all for joining our Q4 fiscal 2023 conference call. Q4 revenue increased 83% year over year to 7,500,000 dollars This growth was driven by record high IP revenue. Full year revenue increased 31% to 21,200,000 dollars New products represented 86% of total revenue in 2023, up from 72% in total revenue in 2022. We believe the percentage of new product revenue which is driven mostly by IP contracts will increase again in 2024.

Speaker 3

We set several new all time records for QuickLogic in 2023. These include new quarterly records for non GAAP operating profit and non GAAP net profit set in Q4 and for the full year. We also set new records for non GAAP operating margin and non GAAP net profit margin. Based on our outlook for greater than 30 percent revenue growth in 2024, which is well supported by our record $168,000,000 opportunity funnel, we anticipate eclipsing those records this year. The short story here is the IP business model we launched in 2020 is delivering strong results.

Speaker 3

Over the last 3 years, we have delivered a top line growth of 146%, increased our non GAAP gross profit dollars by over 2 30% and with a modest decrease in non GAAP operating expenses improved our operating leverage by over 2 50%. With this performance, a profitable year now under our belt and an outlook for continued growth driven mostly by new IP customers, I think it's fair to say our new IP business model has developed solid traction. Let's take a few minutes now to update the status for some of our major contracts. Last August, we announced the award of the 2nd phase of our government contract that has a total potential of $72,000,000 This phase added Honeywell Aerospace as a foundry partner and increased the funding from Phase 1 levels to bring Honeywell up to speed quickly. Phase 2 also funded our continued activity with SkyWater Technologies.

Speaker 3

In our growth projections for 2024, we are modeling a return to the funding rate of Phase 1 for the next phase of this contract. This outlook may prove to be conservative, but providing conservative projections is our goal. While we are highly confident of achieving our 30% plus revenue growth objective in 2024, the timing and cadence of large IP contracts and a strategic shift in how we allocate revenue between engineering services and IP will push the recognition of certain revenue into the second half of twenty twenty four. It is important to note this shift in allocation does not impact or delay our cash flow from IP contracts. Cash flow from IP contracts will remain as it has been in past years.

Speaker 3

This shift simply better aligns revenue with the value of our deliverables and improves our ability to effectively negotiate and win future contracts. Beyond building on the success of our large government contract, we are very well positioned to significantly expand our IP business across many new customers and market sectors, as well as the number of fabrication nodes supported by our IP in 2024. During the 1st 2 months of 2024, we have already booked one significant contract with a new IP customer and believe we will have a second one booked later this week. These two contracts and others we believe we will book in the coming months will contribute to cash flow throughout 2024. However, revenue will not be recognized on our income statement until the second half of the year.

Speaker 3

I would like to provide a little more color on both of these designs. The first new contract that we finalized already this year is exciting and we believe indicative of forward design trends that favor the incorporation of EFPGA technology. I cannot go into as much detail on this design, but I can share it is a new defense industrial based customer and the application is not related to our large government contract. This design will be fabricated by GlobalFoundries on its low power 12 nanometer process known as 12 LP. We believe there will be opportunities to expand our engagement with this customer going forward.

Speaker 3

The second of the contracts is with a large company that I'm sure you would recognize. This design is for a new ultra low power SoC that is targeting a variety of commercial and industrial IoT applications as well as aerospace and defense applications outside the U. S. This design has been referenced in prior calls as government funded and will be fabricated by TSMC on its 12 nanometer process. Within the SoC, our eFPGA technology is used for AI acceleration, which is a necessary function in most AI applications.

Speaker 3

We believe this will prove to be a rapidly growing application that is often better served by FPGA technology than a processor running the acceleration algorithms and software. If you'll forgive me for diverging into a little tech talk, I'll briefly explain why this is the case. Acceleration is accomplished by processing data using an algorithm. Because acceleration is very important and can provide key competitive advantages for our customers, these acceleration algorithms are constantly refined and changed. Due to this, the semiconductor device tasked with running the algorithms must be able to adapt to changes in the algorithms.

Speaker 3

Since it is impossible for a fixed ASIC to adapt to these changes, the only two ways to support the requirement are a processor or programmable logic, which is most commonly accomplished today with FPGA technology. The challenge here is that while these acceleration algorithms can run-in a processor and the processor can be reprogrammed for algorithm changes, processors are inherently slower and consume far more power than pure hardware solutions like FPGAs. In this particular application, the priority was the lowest possible power consumption and that is what led the customer to select our ultra low power eFPGA IP. As AI expands into edge applications, we believe this will be a common application for eFPGA that we are very well positioned to address. In November 2022, I shared that we had taped out a new device for a customer that incorporates our eFPGA IP.

Speaker 3

Due to strict confidentiality requirements, I can't share more details on the design win beyond a brief update. We continued our work on this design during 2023 and it contributed revenue throughout the year including Q4. The customer is now working through certain aspects of the design. We believe this will take a couple of quarters and that our activity will resume during the second half of twenty 24. This customer could represent tens of 1,000,000 of dollars in potential device revenue starting in a couple of years.

Speaker 3

Last September, we announced the leading technology company chose our eFPGA IP for a design that will be fabricated using GLOBALFOUNDRIES 22 FDX platform. Again, due to strict confidentiality requirements, I cannot go into more detail on the design, but I can share that we are on schedule to deliver our IP during this quarter. Last November, we announced the global semiconductor leader chose our eFPGA IP for a design that will be fabricated on UMC's 22 nanometer platform. We are on schedule to deliver our IP for this design during this Q1. In total, we will be on contract to either deliver or begin development of our IP on 6 different foundry process technology combinations this quarter.

Speaker 3

This is up 3x from a year ago, demonstrating the market demand for eFPGA IP is accelerating and that the automation from our Australis IP generator enables us to address the demand in a scalable way. I continue to be encouraged by the early steps we took to capitalize on the rising chiplet market and I am not at all surprised to see it as headline news today. Chiplet architectures enable customers to much more cost effectively incorporate FPGA into new designs. The research firm Market U. S.

Speaker 3

Recently released its 10 year forecast projecting the chiplet market will grow from only a few $1,000,000,000 in 2023 to $107,000,000,000 in 2,033. That represents a 10 year CAGR of over 42% and I believe we are very well positioned to capitalize on this growth. We have several chiple opportunities in our funnel, including deals with our partner, Your Chip. As a matter of fact, we submitted a proposal to 1 customer earlier this month and have another on tap that we expect to submit later in the first half. Our lead smartphone customer has worked through its excess inventory of EOS S3 and we resumed shipping during Q4 to support production.

Speaker 3

We expect the volume to increase in 2024 as our EOS S3 solution was selected for new designs that will ship into 2025. We are also forecasting modest increases in display bridge shipments this year and expect mature product revenue will be similar to what it was in 2023. The private label agreement that SensiML established last quarter with a leading MCU company is building traction, but not yet delivering revenue. The MCU company has established end customer engagements and SensiML has established some notable engagements independently. We are optimistic that these and future engagements will lead to a material increase in SensiML revenue in 2024.

Speaker 3

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. Elias, please go ahead.

Speaker 2

Thank you, Brian, and good afternoon, everyone. Revenue was slightly above the midpoint of our guidance range and drove record Q4 net income, bringing the full year 2023 to record profitability on a non GAAP basis. Specifically, revenue in Q4 was $7,500,000 up 12% from the 3rd quarter and up 83% from the Q4 of 2022. Our results benefited from higher eFPGA IP license and professional services revenue with another full quarter of the 2nd phase of the large eFPGA contract as well as higher smart connectivity and sensor product revenue. Within our Q4 revenue, sales of new products were approximately $6,800,000 This compares to $6,100,000 last quarter, up 12% and $2,800,000 in the Q4 of 2022, up 140%.

Speaker 2

Mature product revenue was approximately $700,000 an increase of 15% from $600,000 last quarter, although down from $1,200,000 in Q4 last year. Non GAAP gross margin in Q4 was 78.3% compared with 78% in the Q3 of 2023 and 53.2% in the Q4 of 2022. The strong gross margins in the last two quarters 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. Our non GAAP operating expenses in Q4 2023 were approximately 3,100,000 dollars This compares with non GAAP operating expenses of $3,300,000 last quarter and $2,400,000 in the 4th quarter a year ago. Non GAAP operating expenses were lower than our outlook due to the timing of certain payments and the classification of certain professional services to COGS.

Speaker 2

Non GAAP net income was a record $2,600,000 or $0.18 per diluted shares. This compares to non GAAP net income of $1,800,000 or $0.13 per share last quarter and a non GAAP net loss of $544,000 or $0.04 per share in the Q4 of fiscal 2022. Now turning to the full year fiscal 2023 results. Total revenue was $21,200,000,000 up 31% from $16,200,000 in fiscal 2022. New product revenue was 18 $200,000 compared to $11,700,000 in the prior year.

Speaker 2

The increase was primarily driven by higher eFPGA IP and professional services that offset decreases in smart connectivity and EOS S3 revenue caused by customers digesting excess inventory. As Brian noted, we saw some rebound in new silicon revenue during Q4 and expect this trend to continue during 2024. Mature product revenue was $3,000,000 compared to $4,500,000 in fiscal 2022. We anticipate mature product revenue in 2024 will be similar to 2023. For the full fiscal year 2023, we have one customer that accounted for 10% or more of our revenue.

Speaker 2

Non GAAP gross margin for 2023 was 69.8% compared to 56.1% in 2022. The year over year increase was primarily due to the higher revenue level, a change in the mix of deliverables, the capitalization of certain long lived investments and continued cost controls. And while revenue was up 31% from the prior year, non GAAP operating expenses increased approximately 13% to $12,200,000 from $10,800,000 in 2022 as we continue to maintain effective expense controls. The combination of strong revenue growth and controlled operating expenses translated into record non GAAP net income of $2,300,000 or $0.17 per share compared to a non GAAP net loss of $2,200,000 in 2022. Total cash at the end of 2023 was $24,600,000 dollars compared with $19,200,000 at year end 2022.

Speaker 2

This is inclusive of our newly amended and restated credit facility that was increased from $15,000,000 to $20,000,000 and extended to the end of 2025. Net cash increased by approximately $1,100,000 sequentially. Now moving to our guidance for the Q1 of fiscal 2024, which will end on March 31, 2024. Revenue guidance for Q1, 2024 is approximately $6,200,000 plus or minus 10%, which is up 50% over Q1 2023. 1st quarter revenue is expected to be comprised of approximately $5,100,000 of new products, which is a year over year increase of 67% and CAD1.1 million of mature products, which is essentially flat with last year.

Speaker 2

The sequential revenue decline from Q4 2023 is due to the timing and cadence of large IP contracts and a strategic shift that allocates a higher percentage of contract revenue to IP versus engineering services to better align with the value of our deliverables. While this will result in shifting certain revenue recognition in the second half of the year, it is not expected to impact the timing of cash flow from these contracts. For the full year 2024, we expect to grow revenue by more than 30% and generate positive cash flow. Based on the anticipated Q1 revenue mix, non GAAP gross margin for the quarter is expected to be approximately 70% plus or minus 5 percentage points. Our non GAAP operating expenses will be approximately $3,500,000 plus or minus 10%.

Speaker 2

We believe quarterly non GAAP OpEx will remain in a $3,500,000 range this year with accretion increases to support new programs. Please keep in mind that given our industry, we may be required to reclassify certain expenses to COGS or capitalize certain costs at times. The reclassifications are mainly related to labor and tuning for our revenue contracts with customers. Capitalization will reduce OpEx and change the timing for recognizing the corresponding expenses and COGS. This may cause variability in gross margins and operating results.

Speaker 2

With these variables in mind, we believe our full year 2024 non GAAP gross profit margin will be in the upper 60% range. After interest, other income and taxes, we currently forecast that our Q1 non GAAP net income will be approximately $500,000 to 1,100,000 dollars or $0.03 to $0.08 per share based on roughly 14,400,000 fully diluted shares. We believe we are well positioned to deliver strong profitability for the full year 2024. The difference between our GAAP and non GAAP results is related to non cash stock based compensation expenses. In Q1, we expect this compensation would be approximately $700,000 As a reminder, there will be movement in our stock based compensation during the year and it may vary each quarter based on the timing of grants to employees.

Speaker 2

With investments this quarter to support the new design wins that we have discussed, including hiring critical engineering and sales roles and the timing of such impairments, at the midpoint we expect cash usage to be less than $1,000,000 in Q1. These investments are in anticipation of continued strong growth in 2024 and that time to the signing of new contracts for design wins. As I noted earlier, we are on track to be cash flow positive for the full year 2024. Thank you very much. With that, let me now turn the call back over to Brian for his closing remarks.

Speaker 3

Thank you, Elias. The amazing team I get to work with every day has in only 3 years driven the development of a successful, profitable and high growth IP business model. Thank you all for your hard work and dedication. We have also maintained our core capabilities as a silicon supplier that we will more fully leverage in our storefront and other device oriented strategies going forward. This ability to provide turnkey solutions for our IP customers sets us apart from our competition.

Speaker 3

Since launching our IP business model in 2020, we've grown non GAAP gross profit dollars by over 2 30% and with a modest reduction in non GAAP OpEx, our operating leverage has increased by a remarkable 2 51%. While this performance marks a great turnaround story, I think the best is yet to come. We exited 2023 with not only solid traction, but also momentum. We have already booked one significant contract with a new IP customer and have a second to be booked later this week. We have also realized net funnel growth to a record $168,000,000 This is a sterling example of the old adage that success breeds success.

Speaker 3

As new bookings grow, so do new opportunities. While we expect 2024 will be a year of strong growth, profitability and positive cash flow that is driven mostly by new IP customers, we also believe that royalty and storefront revenue will soon be visible on the horizon to accelerate our growth in future years. With that, I would like to open the call for questions.

Operator

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

Speaker 4

Thank you and good afternoon, Brian and Elias. My first question is congratulations on a profitable 2023. In looking at how your revenue is going to be second half weighted this year, the revenue recognition as opposed to the cash flow, what percentages would you put on that 40, 60, 45, 55? How in general should we look at that?

Speaker 3

You mean second half to first half as a percentage of total?

Speaker 2

Yes.

Speaker 3

You're asking? Well, greater than 50% will be second half. I don't think it's going to be as high as 70% or 80%, but greater than 50%. And I'll just make a comment here. As we get into more of these larger IP contracts, we are probably more certain of winning something than the actual timing of the contract and the executed because you can imagine the larger the contract, the more complicated the contracting process is.

Speaker 3

And that's why I think we're taking a somewhat conservative approach in how the revenue lays out in addition to the point that you reinforced on this shift and how we're assigning the value of the contracts between the upfront work versus the IP license that's recognized at the end of the deliverable period. Yes, it's more than 50% will be second half. I think I'll also add that I think if you look on an annual basis quarter to quarter reference, so like Q1 2023, Q 1 2024, Q2 2024, Q2 2024. I think we're safely forecasting that every quarter in Q1 sorry, in 2024 will be greater than the corresponding quarter in 2023. And if you just lay that out in a model, you can see that, that would be greater than 50% of the revenue would be in the second half, but also not what I would call a hockey stick either.

Speaker 4

Okay. And thanks for that color on that issue. The new contract that you expect to book this week relates back to a customer you've talked about for several quarters, the one at TSM, is that the one that you referenced could produce tens of 1,000,000 of dollars of device or chip revenue in a year or 2? Is that the same one?

Speaker 3

No, that's a different customer. And that's a good thing. We need more shots on goal and more opportunities to engage with IP and potentially convert it to a storefront deal. But now that to be clear, that's a different customer than that one.

Speaker 4

Okay. Thanks for that clarity there. One final question on FPGA and AI at the Edge. You see that as a growing market, Is that weighted toward the second half of this decade? In other words, as AI rolls out in large supercomputers in the data centers right now, with GPUs as accelerators, are you seeing AI at the edge more of a 2025 to 2,030 narrative or even starting second half of this year?

Speaker 3

Well, as far as revenue impact to us, I think it's going to be starting from second half of this year based on this contract that we're going to be signing here imminently. But they're not alone in discussing that kind of a use case with us. I think a lot of people are trying to figure out, not everybody wants to use NVIDIA. Everybody is today, but not everybody wants to. And I think as soon as people can figure out other ways of tackling that problem, FPGA technology being one of those and then the software stacks associated with that.

Speaker 3

Once they start figuring that out, then I think you'll see more people using that type of technology. And when I say FPGA, I really should say eFPJ because I think naturally people are trying to look at doing their own ASICs and take control of their own destiny in that sense. So I think that will drive future opportunities for us. And the more of these wins that we have today that we can articulate value propositions like that to other people, I think that will help accelerate that. And then just to the point about the edge and the data center, a lot of people are I think all the press right now is going towards the data center because of all the generative AI grabbing all the headlines.

Speaker 3

And so naturally what we read and hear about is more on that end of the spectrum. But there's still a fundamental physics problem in how you do some level of inferencing for what I'll call more practical applications at the edge. And we're seeing people look at, FPGA and EPGA technology for that. And again, that's what drove this soon to be signed contract. And I'm sure that company is not alone in being able to use FPGA for those types of use cases.

Speaker 4

Okay. Thanks for that explanation, Brian. And thank you for letting me ask these questions.

Speaker 3

Absolutely. Thank you.

Operator

And our next question comes from the line of Richard Shannon with Craig Hallum. Please proceed.

Speaker 5

Well, hi, Brian Elias. Thanks for taking my questions and I'll add my congratulations on a profitable 2023, great interesting details you share here today, Brian. I guess, interesting details you shared here today, Brian. I guess I want to ask about the strategic RadHard contract and I wanted to make sure I understood the intent of the comment about returning to a previous run rate of that contract or I'm sure I butchered your language here, Brian, but maybe you could repeat that and then explain what that means.

Speaker 3

I'm going to try to do that in a way that I'm allowed to do that. Let me see the right way to say this. So right now we're doing something with 2 fabs and we're doing a lot of design continually on rh90 and I'll call it catching up or accelerating similar type design on the Honeywell process. I don't know that it's going to continue like that forever as far as that amount of work and that amount of time on 2 foundries. And so we're taking a conservative view of what that means for our revenue in this quarter and for the balance of the year.

Speaker 3

And I would like to think that we are being conservative and that there's opportunities to increase that within the same time period. And I really can't go into further details on that and I hope that you are okay with that sensitivity.

Speaker 5

I guess I'll have to be okay with it, Brian, but I'm just jonesing to ask a couple more questions on that, but I'll resist the temptation here.

Speaker 3

I'll answer what I'm allowed to answer, but nothing more.

Speaker 5

Yes. I know you have been. Let's see here. So you mentioned a couple of contracts here or one signed and one expect to be signed here shortly. And you made a used a phrase in response to one of the last questions here about the size of these contracts seemingly growing larger.

Speaker 5

I mean, obviously, other than the strategic RadHard, which is obviously in a zone of its own here, are you generally seeing a trend of larger IP contracts, at least so far this year versus last year and the year before? Or am I mashing up your words there?

Speaker 3

So I'd say the average that we are seeing is up and we're going to put a press release out tomorrow morning on the 12 nanometer one that we talked about today on the call. And you'll see a dollar figure, a rough dollar figure in that press release that we didn't go into on the call. So you'll see that generally they're trending up. Yes, that's a good thing. I think the more people are starting to appreciate embedded FPGA technology and not just tire kick and experiment with it, I think a lot of them are coming to appreciate the ROI that it gives them in the sense that if they don't have to go off and re spin a chip, re spin a mask, as you get into these more aggressive process technologies, that's a real savings from an NRE perspective.

Speaker 3

And so if we can attribute some of that savings to the value that we bring, then our prices go up. And I think so I think there is an appreciation of the value proposition and also naturally as we get more of these advanced process technologies supported just by that very fact, you're going to see uplift in our selling prices and the contract value because they're more expensive notes. Those projects in general are going to be quite a bit more expensive for the end customer to embark on than something in a laggard technology.

Speaker 5

Okay. So does that mean that the process note is a primary determinant of total cost or value of the contract then or just a important factor?

Speaker 3

It's a marker for it, but it's not the only thing. I mean, how much logic they need, how much customization goes into the core that they're wanting from us, the workloads they're trying to run, all of those are factors that go into how we price the IP. We have to have a starting price book, of course, for things just as a reference, but everything from there Because remember, our value proposition with Australis is that we're agile, we can adapt the core to meet the needs of the customer, to the workload it's going to run. So really it's not a one size fits all even within a process node. And because of that, that impacts the work, it impacts the value and therefore the price.

Speaker 3

And we're big believers in value based pricing. So no two customers have the same price, right? It all comes down to the value of the work together.

Speaker 5

Right. Okay. Let's hear maybe a couple of more questions. I'll jump out of line here. One of your comments, Brian, you alluded to storefront and royalty revenues.

Speaker 5

I don't think you're referring to or having us expect to see any notable revenues either of those opportunities this year. So if you could clarify that and then how do we think about as we get into 'twenty five, how could those be contributory in any way? And I guess since you've quantified and talked about the potential impact of storefront revenue specifically, could that be a big contributor in calendar 2025?

Speaker 3

I don't know that storefront will be a big contributor. I think it will be a contributor. And let's just step back and say why do we even talk about Storefront to begin with. So when we started as a company, we started as a fabless FPGA company and all we did was sell devices. So we have all the infrastructure that you would expect the device company to have.

Speaker 3

We have operations teams, supply chain relationships, everything. Anybody that's been to our office has seen that. As we brought the IP business model out, we were able to leverage that infrastructure that we've already invested in because some companies, they like the notion of IP, they like the idea of doing their own device, but maybe they need more than that, especially as FPGA becomes a greater percentage of the total content of their chip. Sometimes they, I think, prefer to just let an FPGA company do that for them. And so that's where we're getting nice synergy by having both of these business models.

Speaker 3

And it is truly a differentiator compared to just an IP company or just an FPGA company. So the work that we're doing within that storefront area, I would say largely is like that upfront IP work. We talked about that customer, that tape out customer that we've been doing work on even in 2023. Eventually those things are going to go to production and when they go to production then we can do the device revenues. And I think like I started answering your question, it will start in 2025 to some extent, but as far as like becoming a meaningful percent, I think we're modeling beyond 2025 for that.

Speaker 3

And that's okay. If you think like fast forward a couple more years and the end of this government contract is there and then devices are starting to be available to be designed into real systems. That's when I think we should all expect sort of the step function increase to take place from the storefront revenue really kicking in because storefront revenue is going to far exceed any IP license or royalty that we would see for these types of designs, right?

Speaker 5

Okay, fair enough. I'll ask one more question to jump out of line here. Obviously, we've hit profitability. We're going to have a nice growth here with seemingly better profitability, at least gross profit contribution. How do we think about your investments in OpEx here as you go throughout the year?

Speaker 5

Are you going to keep it relatively flat or kind of opening up some job openings in any way? Or how do we think about this both kind of qualitatively as well as quantitatively?

Speaker 3

I'll let Elias do the quantitative and then I'll give some qualitative comments on that.

Speaker 2

Yes. So I think we're going to be like around the $3,500,000 So that's definitely an increase of about $300,000 Richard, a quarter. I think mainly because we have we do have positions open. We've been very vocal about it with everyone. If you go to our careers website, you'll see it open.

Speaker 2

We have a lot of engineering positions open. We have just hired a sales person in the U. S. That was very necessary. So where applicable, we are going to hire and basically spend the money to invest in the business.

Speaker 2

But that's really very small change compared to what we're expecting growth.

Speaker 3

Right. So the qualitative comments on top of that. So I was actually on a panel at a chiplets summit a couple of weeks ago in Santa Clara Convention Center. And the whole topic of that was around innovation and entrepreneurship in chiplets primarily, but it extends to semiconductors. And so one of the topics of discussion was how do we run our companies.

Speaker 3

And my answer to that was we run this company like a publicly traded startup. What does that mean? That means obviously we have to be mindful of all the financial metrics and targets that a public company has to do. And internally, we run it like a startup where we people are wearing multiple hats. We are really focused on customer and growth and revenue and doing it in a prudent financially responsible way and we have to make sure that we do that.

Speaker 3

So that 3.5% that increase from list coming this past year is really about looking at those opportunities that we do on a regular basis and these rifle shot hires that increase the capacity in our engineering team to execute on those revenue opportunities. And so that's why the growth in the headcount is primarily sales, which is top of funnel. We clearly had sort of tapped out the capacity of our current sales team and we want to add more because we saw so much of this opportunity, especially in the U. S. That warranted having another person handling some of that.

Speaker 3

And then on the engineering side, Australis is wonderful because it's automated. But at the end of the day, you still need engineering people to provide the intellect and porting these things to different process nodes and making those, customizations that I mentioned earlier that drive value for customers. And so more opportunities coming in, we have to add more engineers. And we love doing that because, A, that means there's demand and B, I think we have a model, a scalable model in place where we can add those and we can still remain profitable as we do it. So profitable growth and customer diversification is really key for us this year.

Speaker 3

And that will come from these hires, right, driving more top line opportunities and executing on those revenue contracts. So yes, you will see increase. I think most of the increase that Elias talked about is probably in headcount. And I think that's for a very good reason. Okay.

Speaker 5

I appreciate the answer guys as always. I'll jump in line. Thanks.

Speaker 2

Thanks, Richard.

Speaker 3

I'd like to, as always, thank everybody for joining the call today. And I look forward to seeing you at either a trade show or an investor conference or at our next earnings call, which will be approximately 3 months from now. Have a great day. Thank you.

Operator

This concludes today's conference. You may now disconnect your lines. Enjoy the rest of your day.

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