QuickLogic Corporation
Q1 2021 Earnings Call Transcript

Published: 18 May 2021

[Operator:]

Ladies and gentlemen, good afternoon. At this time, I’d like to welcome everyone to QuickLogic Corporation’s First Quarter Fiscal Year 2021 Earnings Results Conference Call. As a reminder, today’s call is being recorded for replay purposes through May 25, 2021. I would now like to turn the conference over to Mr. Jim Fanucchi of Darrow Associates. Mr. Fanucchi, please go ahead.

[Jim Fanucchi:]

Thank you, Hillary and thanks to all of you for joining us. Our speakers today are Brian Faith, President and Chief Executive Officer; and Anthony Contos, Interim Chief Accounting Officer. The company continues to follow social distancing practices and management is again hosting this call from different locations today.

[Brian Faith:]

Thank you, Jim. Good afternoon, everyone and thank you all for joining our first quarter fiscal 2021 financial results conference call. In the first quarter, we made continued progress on our transformation to a platform company that leverages artificial intelligence and open source software and hardware. I continue to believe this move to open source is a once in a multi-decade opportunity to disrupt the maturing FPGA market. And I will be articulating during this call the various strategies we are executing to capture that opportunity.

[Anthony Contos:]

Thank you, Brian. With this being my first earnings call, as a way of introduction, I joined the company in early January and was appointed Interim Chief Accounting Officer on January 28 as part of the CFO transition announcement. Over the span of my 30-year career, I have worked in many senior and executive level accounting and finance roles, mostly in the technology industry. In my time with QuickLogic, I have been pleased with the depth and knowledge of the finance team and have appreciated the support Brian and the executive team have provided during this transition period. The company has a bright future and I look forward to being part of this exciting opportunity.

[Brian Faith:]

Thank you, Anthony. In February, Olof Kindgren, Director of the Free and Open Source Silicon, or FOSSi Foundation and a well-known advocate of open source tool flows, published its 2020 year end review. In that piece, he highlighted our proactive open source efforts, noting that we are the FPGA company, that will go down in the annals of history for being the first to do open source. This kind of recognition from an industry leader is helping expand QuickLogic’s brand in the fast growing open source ecosystem. I could not be more excited about the prospects for QuickLogic. The number of opportunities in new and growing markets is better than we had anticipated. We believe there is a clear path to achieve many of the business and financial objectives I have talked about and now feel stronger than ever that we control our own destiny. I would not have been able to say that a year ago. After a slower-than-expected start in the first half of fiscal 2021, we believe the back half of the year will be strong and should lead us to meeting our financial objectives for the year. In closing, I would again like to thank our many stakeholders, including our customers, partners and QuickLogic team members for their continued support. That completes our prepared remarks. Operator, I would now like to open the call for questions.

[Operator:]

Our first question is from Suji Desilva of ROTH Capital Partners. Please state your question.

[Suji Desilva:]

Hi, Brian. And Anthony, welcome to the call, best of luck in the new role. So just a quick housekeeping question first. I know you guided the cash burn, but what was the cash burn in 1Q? And is the line of credit fully drawn, just to understand your funding position?

[Anthony Contos:]

Yes. Yes. So the $50 million was fully drawn at the end of the quarter, and our overall cash position then was about $5.9 million and without debt-free. Does that answer your question?

[Suji Desilva:]

Yes. The burn in the first quarter versus the guidance for the 2020.

[Anthony Contos:]

The excess burn related to the guidance was really primarily related to employer and employee taxes related to RSUs that was not forecasted properly. Basically, the company has always used a withhold to pay as opposed to a sell to cover. So we have actually moved to a sell cover going forward so to make our forecasted results a lot more predictable.

[Suji Desilva:]

Okay. And then maybe, Brian, I know there was a pushout of one of the IP deals. Can you talk about the size of the IP revenue opportunity in ‘21? Because it sounds like it could come on fast. I just want to get a sense of how much it could contribute to a ‘21 revenue forecast?

[Brian Faith:]

Yes, it’s a good question, Suji. So, the one that we talked about moving from Q1 to 2 is a low 6-figure IP license that will fully get recognized this quarter. But for the balance of the year, with these big deals that we’re talking about in play right now, this could be well over $1 million in IP deals for the balance of this year. So I think, again, it just sort of underscores that there is scarcity value to programmable logic. It’s very interesting for people to integrate, and we’re seeing the value of that increase now that we’ve moved to this new way of doing things. So I think it could be quite large for the balance of the year.

[Suji Desilva:]

Okay. And a couple of questions, I will try to make it quick on the open source and the , but they are all interesting to me, I think. First of all, when you said FPGA making it more competitive in the U.S., all the U.S. – all the FPGA companies are domiciled in the U.S., but did you mean actually manufacture in the U.S., was that what you’re talking about, Brian?

[Brian Faith:]

Well, it wasn’t specific to FPGA technology, but it was more a general thought that semiconductors themselves sort of have this bright light shining now because of the you see all these companies, their manufacturing lines are going down because of the lack of capacity. So there is more of a movement from Washington to invest in onshore semiconductor development, that’s one. And we’re talking about tens of billions of dollars for that. The second is that there is a lot of additional research that is being funded through DARPA for a blend of semiconductor technology that’s either onshore and/or with open source to make that a more scalable technology for people to adopt in the U.S. So you couple those together and the fact that we have all of this deep domain expertise in programmable logic that dates back 3 decades. That’s where I was trying to take. But I think there is a really good opportunity in front of us here to capitalize on all those things. It’s sort of a confluence of events, if you will.

[Suji Desilva:]

Okay. And the DARPA toolbox, specifically, are you aware that are you the only FPGA technology they are looking at now or are there multiple FPGA technologies being evaluated just to understand your exclusivity there?

[Brian Faith:]

Well, so there is – I don’t think DARPA wants anything to be exclusive because they want choice and option for their – for all of the DARPA performers or people that do DARPA based projects. So if you go to the DARPER tool box page, you’ll see a QuickLogic from eFPGA and FPGA point of view. You’ll see one of our IP competitors from an eFPGA-only point of view. And then you’ll see one of the other mid-sized discrete FPGA companies there for FPGA user IP or references on IP. I think what makes us unique and stands out amongst those other two

[Suji Desilva:]

Okay. And the last question, I’ll step on line after this. The open source initiative is a lot talk about in the next few quarters, I’m sure. But the notion – I know you can’t talk specially about your partners what you’re doing, but someone like Mouser, for example, and just in general as a distribution channel, I don’t think they are just selling your products. I think they are trying to probably evangelize it with kits and so forth. Maybe you can help us see how a distributor with that kind of reach like Mouser can help your open source initiative? Just to give us some flavor of how this is going to play out.

[Brian Faith:]

Yes. So with Mouser, it’s about worldwide reach and making it very easy for people to start getting the technology, kitting things together with different boards to emulate proofs of concept for a customer and then getting AI offer and running with it. So Mouser, I think, is great in that sense. We do have other large distributors around the world like Future. Future Electronics actually is running all these AI seminars for their customers and including us as part of that. So you’re right, they are doing more than just stocking parts. They are actually proactively setting up sessions with engineers that they have relationships with to promote the technology to them and the same is true with some of the regional distributors in Asia also. So yes, they are definitely much more than just the fulfillment side of distribution that people classically associated with semiconductor distribution and they are much more supporting on the design side and the promotion side.

[Suji Desilva:]

Thanks, that’s it for me. Thanks, Anthony. Thanks, Brian.

[Brian Faith:]

Thanks, Suji.

[Anthony Contos:]

Thank you.

[Operator:]

Our next question is from Martin Yang of Oppenheimer. Please state your question.

[Martin Yang:]

Hi, Brian. Welcome, Anthony. My question is on the development kit, it seems like the traction is pretty good. Is there a way for you to follow-up with those individual developers? And then form direct relationship with them to see where they are in your – with either quick better or some of the newer development boards?

[Brian Faith:]

Yes Martin, I can take that question. Absolutely. It’s not a black box when the voice – when a Board actually sells through to a developer, an engineer. We are shared information that’s all above board, of course, with our – from our distributors with that contact information, name, company, all that stuff. So, we can and do follow-up and we try to prioritize who we follow-up on. Obviously, some of those more than 1,000 are going to be people kicking the tires or students, and we don’t prioritize those, but we do especially prioritize large Fortune 500 companies of which some of these are for. And so we are following up in that sense. By the way, there is also not just distributors, we are still selling on our website. In some cases, people just prefer to buy direct from the OEM and so that makes it pretty easy to follow-up as well.

[Martin Yang:]

Got it. And can you – as a follow on that, can you maybe tell if there is more traffic directed to your direct channels versus some of the distributors.

[Brian Faith:]

For the debt kits specifically?

[Martin Yang:]

Yes. Is there any trend where more developers attracted directly to your website as opposed to getting the boards from third party sources?

[Brian Faith:]

I would actually say that once we’ve had these multiple launches at different distributors, we are getting more sell-through through the distributors to customers now. And I think, generally speaking, they already have accounts with these distributors. So it’s pretty easy for them to just tack on another board to an existing account. So we have seen quite a bit more, I would say, maybe 90% of board sales now go through distributors than direct to QuickLogic. But again, it doesn’t really matter to us because as long as we can find out who has bought them, and we have the opportunity to follow up, that’s fine for us.

[Martin Yang:]

Got it. My final question is on your strategic initiatives of which you have signed the MoU with. And is there any milestones you have to achieve before the funding finally falling to place?

[Brian Faith:]

That’s a great question. And the short answer is no. We don’t have any milestones. They have to have the pulling together of that to get the funding to us. So I think from our standpoint, we’ve tightened everything up. And like I said in the script, the last 6 weeks have been pretty crazy in terms of RFPs and RFQs and getting all these proposals back out. So at this point, I think everything that we’re obligated to do for those has been done, and now we’re in the wait and see mode to see when these things are actually going to close.

[Martin Yang:]

Got it. Thank you.

[Brian Faith:]

You are welcome.

[Operator:]

Our next question is from Richard Shannon of Craig-Hallum. Please state your question.

[Richard Shannon:]

Hi, Brian. And welcome Anthony. Look forward to working with you.

[Brian Faith:]

Thank you.

[Richard Shannon:]

I’m going to follow-up – Thanks, Brian. I am going to follow-up on the last question or topic of your last question on the strategic initiatives. Brian, you made some interesting statements which, I guess, I’d love to throw. I’m probably not going to ask a very detailed question here. But when you talk about multiple RFPs and RFQs totaling tens of millions of dollars coming through in the last 5 weeks, I guess I’d love to learn a little bit more about this? What are these related to? Can you characterize the companies from which you are receiving these? And what’s kind of the process going forward, assuming the funding gets closed here, what would happen after that?

[Brian Faith:]

So at the highest level, I would characterize nearly all of these are very well-known entities, if I were to say their name. About half or semiconductor companies, half are system companies, OEMs, large OEMs. And if you double-click further, there is a mix of device opportunity and a high degree of IP license and service revenue as part of that. So the nice thing is it’s really blended. Almost all of it is based on our open-source initiatives, and I think that gives us a very good competitive edge in terms of how we’ve responded to these different quotes. And I also mentioned in the script, by the way, it was 6 weeks, not 5. The time frame for revenue on some of these is actually 2021, so not 2022. And the last thing I’ll add is that several of these have upfront cash obligations as well. So I think from a financial point of view, that’s also comforting to know that there should be some upfront cash for these as well.

[Richard Shannon:]

Okay. Very interesting. I’ll look forward to hearing more about that in future weeks and quarters here. Let’s see here. Moving on, just a quick question on the guidance here for the current quarter. Just based on the little bit higher gross margin, I’m assuming there is a little bit higher margin, I’m assuming there is a little bit higher component of licensing in there. I guess I want to understand where that’s coming from. Is that the one you are expecting to sign on first quarter that’s moved over to the second? And I guess part of that question is that I think in the last call, you talked about potentially getting a full license for an FPGA signed in the first half of this year. And it seems like you are getting one push from the first or the second quarter that would definitely happen. So I just want to make sure I know what’s being included in there?

[Brian Faith:]

Yes. So for Q2, definitely, that IP license as part of that gross margin uplift. There is also some nice gross margin mature product in this quarter that are contributing to that and then some SensiML as well but, obviously, has high gross margin. The first license for the first half is definitely the one that we’re talking about. There are several other ones now in flight, I would say based on these different RFPs and RFQs that we’ve responded to.

[Richard Shannon:]

Okay. That’s helpful. Maybe just a couple of other quick questions for me. Obviously, your phone customers are pretty important contributors. You – and you talked about some more wins, maybe two to four ramping in the rest of the year. Would that be fair to say, Brian, that if we were to think about seasonality, obviously, we’re – I think we’re certainly less than 2 years into those customer. Is it fair to say that you’re expecting the second half of the year to be better than the first half just based on their cadence of wins and the ramp so far?

[Brian Faith:]

Yes. I think that’s a good way to look at it, Richard. This particular customer, especially with so many of these handsets shipping into Japan market itself. They typically have 2x per year that they do major launches, spring and fall. So a lot of the uplift you’re seeing right now is – and actually, in Q1 was because of the spring launch preparation. So yes, I expect if we do get into these two to four models, like what I was saying in the prepared remarks that we would also see a similar effect in the second half, which, by the way, I think that’s one of the reasons why you’re seeing, like I said on the call, we’ve already got backlog through September, and they are really working with us in partnership with our longer lead times that we have to accommodate right now from the supply chain side. Because they really want to make sure that they have product or inventory of our devices on hand to support their launch in their ramps.

[Richard Shannon:]

Okay. That’s helpful. Last question for me, just on the financial outlook for this year, last quarter, you talked about your kind of goals here. In terms of sales being mid-teens. But Anthony reiterated your gross margins in the 60%. But just want to make sure the mid-teen sales is still a number that you still believe is achievable?

[Brian Faith:]

Yes, that’s correct.

[Richard Shannon:]

Okay, perfect. I just want to hear that. That is all for me, Brian. Thank you.

[Brian Faith:]

Thanks, Richard.

[Operator:]

Our next question is from Rick Neaton of Rivershore Investment Research. Please state your question.

[Rick Neaton:]

Thanks you, Brian. Hi, Anthony. I wanted to clarify something that maybe I didn’t correctly understand the strategic initiative that you talked about that will hopefully close by the end of summer now. Is that related to all the RFPs and RFQs that you mentioned you’ve had to deal with over the last several weeks?

[Brian Faith:]

Now that originally when we talked about in February is separate from the new wave that we got from a lot of other entities besides that one that we responded to that are the tens of millions of dollars of magnitude. So that’s why I was trying to convey my optimism and excitement around just this whole recognition now that we’re a big player in this open source programmable logic area because that’s really one of the driving factors behind all these incoming RFPs and RFQs. Again, they were in addition to the one that we were talking about in the February call.

[Rick Neaton:]

Okay, thanks. Are the distributors driving these RFPs and RFQs, are these coming directly? These are direct?

[Brian Faith:]

No, no, no.

[Rick Neaton:]

Okay.

[Brian Faith:]

No. Generally speaking, semiconductor distributors are very solid. Their swim lane is sort of the sub $1 million per year type opportunity. If it creeps up into the several hundred thousand to a million, we make sure we get our direct folks involved, but I can assure you that all of these ones that were part of this group of RFPs and RFQs that I was articulating are being handled by QuickLogic personnel directly. Of course, we will probably have to fulfill some of these through distributors. But at that point, it will be a fulfillment that won’t be a design win because we will take care of the part ourself.

[Rick Neaton:]

Okay, thanks a lot, Brian. I appreciate it.

[Brian Faith:]

Thanks, Rick.

[Operator:]

We have reached the end of the question-and-answer session. I will now turn the call back over to Brian Faith for closing remarks.

[Brian Faith:]

Well, thank you everybody for participating in today’s call and continued support. We look forward to speaking with you again when we participate in upcoming investor events and again when we report our second quarter results in August. Have a good day. Thank you.

[Operator:]

This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation and have a great day.