Quicklogic Corp (QUIK) 2013 Q4 法說會逐字稿

Ladies and gentlemen, good afternoon. At this time I would like to welcome everybody to the QuickLogic Corporation's fourth-quarter and year 2013 earnings results conference call. (Operator Instructions) Today's conference will be recorded.

With us today for the Company are Andy Pease, the President and Chief Executive Officer; Ralph Marimon, Chief Financial Officer; and Brian Faith, Vice President of Worldwide Sales and Marketing. At this time I would like to turn the call over to Ralph Marimon, Chief Financial Officer. Please go ahead, sir.

Thank you and good afternoon. Before we get started let me take a moment to read our safe harbor statement.

During this call, we will make statements that are forward-looking. These forward-looking statements involve risks and uncertainties including, but not limited to, stated expectations relating to revenue from our new and mature products, statements pertaining to our design activity and our ability to convert new design opportunities into production shipments, market acceptance of our customer products, our expected results, and our financial expectations for revenue, gross margin, operating expenses, profitability, and cash.

QuickLogic's future results could differ materially from the results described in these forward-looking statements. We refer you to the risk factors listed in our annual report on Form 10-K, quarterly reports on Form 10-Q, and prior press releases for a description of these and other risk factors.

QuickLogic assumes no obligation to update any such forward-looking statements. This conference call is open to all and is being webcast live.

For the fourth quarter of 2013, total revenue was $8.9 million, which was above the high end of our guidance. New product revenue totaled approximately $7 million and was above our guidance due to continued strong shipments of our ArcticLink III VX platform to Samsung.

Mature product revenue in the fourth quarter totaled approximately $1.8 million, which was at the midpoint of our guidance range. Samsung accounted for 69% of total revenue during the fourth quarter as compared to 68% of total revenue during the third quarter.

Our non-GAAP gross profit margin for Q4 was 34% and was below our guidance. The decrease in gross margin is primarily due to product and customer mix, higher-than-expected inventory reserves, and lower absorption of our fixed costs.

Non-GAAP operating expenses for Q4 totaled $5 million, which was just above the midpoint of our guidance. On a non-GAAP basis the total for other income, expense, and taxes was a charge of $130,000. This resulted in a non-GAAP loss of $2.2 million or $0.04 per share.

We ended the quarter with approximately $37.4 million in cash. Cash usage of approximately $900,000 was favorable to our guidance, primarily due to the timing of collections.

Our Q4 GAAP net loss was $3.2 million or $0.06 per share. Our GAAP results include stock-based compensation charges of approximately $912,000 and fixed asset write-off of approximately $93,000. The larger-than-forecasted stock-based compensation charges are due to a one-time stock award to non-executive employees for exceeding our internal targets for the year.

Please see today's press release for a detailed reconciliation of our GAAP to non-GAAP results as well as for detailed information on our full-year 2013 results. Now I will turn it over to Andy, who will update you on the status of our strategic efforts. Following this, I will rejoin the (technical difficulty) our Q1 guidance.

During 2013, we exceeded our expectations by more than tripling new product revenue. We also established a foundation that will allow us to build a much more substantial business.

Our success was driven by an extraordinary team of dedicated individuals who worked late hours and weekends to make it happen. Each team member has (technical difficulty) with respect and appreciation as to stockholders who have invested in QuickLogic's future.

When I took over as CEO three years ago, my team developed a strategic plan that included short-term tactical objectives and longer-term roadmap goals. We defined our tactical objectives by evaluating our assets and determining how to leverage those assets to build a solid revenue base and strategic relationships with key customers and leading silicon suppliers. I believe we accomplished these objectives in 2013.

In 2014 our goal is to dovetail our tactical success with the first phase of the longer-term strategic plan we introduced last fall. As we managed this transition from display bridges to smart connectivity and sensor hubs, we anticipate significant year-over-year new product revenue growth.

The Samsung Galaxy Tab 3 7.0 was the major driver for our Q4 revenue and we expect it will continue to be a driver as we move through the first half of 2014. I am very pleased to announce that we won a follow-on ArcticLink III VX design in Samsung's new Galaxy Tab 3 7.0 Lite, a cross-optimized version of the original Tab 3 7.0.

During Q4 we initiated shipments of our ArcticLink III VX platform to a Tier 1 PC manufacturer to support production for two new tablets and we continue to support multiple tablet designs with various Chinese independent design house customers. With our legacy smart connectivity platforms we continue to support the Kyocera and PHS handset designs. In addition, we initiated production shipments of smart connectivity CSFPs to support Kyocera's Liberio 2 and WX12K PHS handsets. Each product incorporates two QuickLogic CSSPs.

The design we mentioned last quarter with a second PHS handset company is scheduled for production mid-2014. This customer is evaluating a smart connectivity CSSP for use in a new non-handset design.

In Q4 we took an inventory reserve to write-off the value of our ArcticLink II CX inventory. Although several customers have an ongoing interest in the CX platform, we have not secured any high-volume designs in our targeted mobile market. Given this fact and the large number of engagements we have for our new smart connectivity and sensor hub CSSP platform solutions, we have decided to focus our engineering resources on these strategic initiatives.

Last October we unveiled the first milestones of our long-term strategic roadmap, including our new in-system reprogrammable logic technology and two new CSSP silicon platforms: ArcticLink III SI and PolarPro 3. These platforms were defined through extensive market research from numerous potential customers and leading application processor, MEMS sensor, and sensor algorithm companies.

In conjunction with these new platforms, we introduced two new catalog CSSPs that address always-on sensor application requirements. In the long list of requirements we were provided by potential customers, ultra-low power consumption was presented as nonnegotiable. To address these requirements, our office to the CTO leveraged the inherent benefits of our uniquely efficient ultra-low power reprogrammable logic technology and architected our patent pending system that is based on the flexible fusion engine technology in ArcticLink III S1.

The ArcticLink III S1 silicon platform and the catalog CSSP derived from it are complete sensor hub solutions capable of supporting the rigorous requirements of always-on context awareness while consuming less than 300 microwatts of power. To the best of our knowledge, no other solution available today provides similar functionality without the penalty of substantially higher power consumption or significantly less flexibility.

Our PolarPro 3 family is a general purpose smart connectivity CSSP silicon platform we believe will compete favorably against the low-power FPGA solutions used in many of the top selling smartphones. PolarPro 3 leverages our hardened FIFO controllers, which are commonly needed in smart connectivity applications, and our unique programmable architecture that provides twice the logic cell efficiencies offered by the competition.

Utilizing the PolarPro 3 CSSP platform, we developed a multi-access sensor data buffer catalog CSSP that saves battery life by allowing- processor-hungry application processors to remain asleep for longer periods. As is the case with our ArcticLink III S1, the PolarPro 3 sensor data buffer can be used in conjunction with any application processor, any MEMS device, and any sensor algorithm. While our current focus is the Android operating system, the platforms were architected to work with any mobile operating system.

This year we demonstrated our new sensor solutions at CES in our traditional suite and a booth located in the MEMS TechZone. This was an extremely busy CES and level of interest from potential customers and partners exceeded even my optimistic expectations.

We have a number of active design engagements with leading mobile device manufacturers for ArcticLink III S1 and PolarPro 3 that I continue to believe will lead to production revenue during the second half of 2014.

With that, I will now turn the call back over to Ralph for our guidance and rejoin you briefly for the Q&A session with my closing remarks.

For the first quarter of 2014, we are forecasting total revenue of approximately $10.1 million, plus or minus 10%. The $10.1 million in total revenue is expected to be comprised of approximately $8.1 million of new product revenue and $2 million of mature product revenue. New product revenue reflects continued shipments to Samsung as well as shipments to other display and smart connectivity customers.

We are forecasting a slight increase in mature product revenue due to higher bookings from our aerospace, test, and instrumentation customers. As in prior quarters, our actual results may vary significantly due to schedule variations from our customers which are beyond our control. Schedule changes for existing opportunities and projected production start dates for new opportunities could push or pull shipments between Q1 and Q2 and impact our actual results significantly.

On a non-GAAP basis we expect gross margin to be approximately 36%, plus or minus 3%. Gross margin is driven primarily due to the mix of customers and products shipped and continued unfavorable absorption of fixed costs. We are currently forecasting non-GAAP operating expenses to be (technical difficulty) [point two million], plus or minus $300,000. Non-GAAP R&D spaces are forecast to be approximately $2.4 million. Our non-GAAP SG&A expenses are forecasted to be approximately $2.8 million.

Our other income, expenses, and taxes will be a charge of up to $60,000. At the midpoint of our guidance, our non-GAAP loss is expected to be approximately $0.03 per share.

Our stock-based compensation expense during the first quarter is expected to be approximately $650,000. We expect to use approximately $2.5 million in cash. The forecasted cash usage is primarily due to our working capital needs and capital expenditures related to new product developments.

Before we move to the question-and-answer section of today's call, let me turn the call back over to Andy for his closing remarks.

2013 was a breakout year for QuickLogic. We more than tripled new product revenue and exited the year with a strong balance sheet. At Samsung we had a key tablet production win, established a direct supplier relationship, and won a follow-on tablet design. We introduced two new CSSP silicon platforms and two new sensor hub catalog CSSPs based on our new in-system reprogrammable logic technology.

We enhanced our worldwide employee base by adding key resources in engineering, sales, and marketing. We will continue to make investments in human capital during 2014. We believe we are well-positioned to manage our transition from display bridges to smart connectivity and sensor hubs in order to deliver significant year-over-year new product revenue growth in 2014.

Finally, I am very happy that Edgar Auslander has joined our Board of Directors. He brings great experience in the mobile market and I will look forward to his contributions to our future success. I would now like to open the call for questions.

(Operator Instructions) Krishna Shankar.

Yes, Andy, Ralph, and Brian, congratulations on the great results. If you look at 2014, you indicated this follow-on design win with Samsung and also a couple of other Chinese IDMs. So can you talk about some of the factors that could drive the first-half 2014 growth? And then the revenue potential from the sensor hub business, where you said you could see revenues in the second half of 2014?

Yes, we have been pretty consistent in our methods, Krishna, that for the first half of 2014 revenue will be driven primarily by display products. Similarly, we are still shipping the Tab 3 7.0 and the Tab 3 7.0 Lite is just starting to ship in Q1, so we believe that the display product revenue will continue throughout 2014.

You did mention Chinese IDHs and they are actually starting to modestly increase in year five, but also the Tier 1 PC manufacturer is introducing two new tablets based on the BX family. The sensor platforms or the sensor hub business as well as the smart connectivity business, as I said in the prepared remarks, is really a second half of 2014 event. We are tracking right now with our design activity and our engagement strategy to make sure that that happens.

Okay. Last can you talk about the gross margin strengths of this year? It sounds like the fourth quarter 2013 could sort of be lower and as you get more economies of scale and bring your costs down and also the sensor hub in second half. Can you talk about the trajectory of gross margins through the year?

We expect gross margin to steadily improve during the year. We believe that the target of 50% is still manageable, but that's a long-term goal for us. We need to get the new products out first. We need to get a little wider base of customers, some that will perhaps bring higher ASPs as well.

But this is -- the goal of 50% we still think is doable, but it's probably now well into 2015. But we will see a steady increase in gross margin, we believe, as we go through the year, particularly in the second half when the new products come out.

Okay. And then Andy and Brian, can you address the applications for your -- for the Arctic III S1 versus the catalog sensor? I'm trying to figure out where you will use one versus the catalog product line.

I'll let Brian answer that.

So the ArcticLink III S1 platform is the platform that has the flexible fusion engine. We can build a catalog device from that or we can actually open that device up for OEMs to do their own sensor algorithm development on that platform and do their own device, essentially.

The catalog solution is intended to be used straight away by an OEM to be put into the board. It already has the sensor fusion and the context awareness algorithms from our partners' sensor platforms built into that. And it's ready to go, including the software driver.

The easy way to think of it is the catalog is ready to go. There's no engineering. It's more integration work. The ArcticLink III S1 platform is one that we use for the catalog or what an OEM may use directly for their own sensor algorithm development.

So, Krishna, the way to think about that from a revenue point of view is it is the catalog products that will actually be the revenue drivers in 2014 and the silicon platforms that are flexible so that the OEM can use their own proprietary algorithm is more of a 2015 event.

Great, thank you.

(Operator Instructions) Gary Mobley.

Congratulations on a strong finish to the year and I'm pleasantly surprised to see the success continue into 2014.

Andy, it was nice seeing you at CES. I know during your demonstration there were a few products remaining on the ArcticLink III S1. Your hope at that time was to have some of the software issues worked out. I'm just wondering if you succeeded in that effort and as well you intend to hit the design win targets that will materialize with the second half of the year.

Gary, it was nice seeing you as well and thanks for the congratulatory remarks. Yes, the issues that were present there we have our arms around them and we are on track with our schedule, which was to introduce this to customers in the first half of this year. And we really believe it will be Q1, so we are tracking very well to do that now.

Needless to say, that's the highest priority at QuickLogic.

Okay. I know the video bridge products, the ArcticLink III VXs, that's somewhat of a competitive segment of the market and it's understandable your margins are lower there. But it sounds like you're going to be heavily weighted to that product in the first half of the year, but yet you are guiding for I think a 300 basis point sequential improvement in gross margins.

I'm just wondering what puts and takes there are. Are you getting better margins or better price initiatives, say, out of customers, or are you just bringing out more cost out of those products?

I think it's actually a little of both. What we will see and what we are seeing in Q1 is our non-Samsung revenue will be increasing throughout the year. That will help the margin equation. We have been working very hard on the cost side at QuickLogic with our suppliers getting ourselves to a better cost structure and that will also help.

And we are also going to have a higher mature revenue if you follow the earnings call, so we are guiding mature up slightly. I think it's up maybe 10% for Q1 over Q4 and obviously mature carries a much higher margin than new product does.

Okay, it makes sense. For these two new products that are I guess a little bit more proprietary, the ArcticLink III S1 and the PolarPro 3, do you anticipate those products being within the long-term gross margin target of around 50%?

I think that those products are steppingstones that will get us to 50 points. I think certainly it will depend on the customer that uses them, but certainly they are better margin products that we have today and it's an incredible improvement. I don't see this becoming a step function, though.

All right, thanks, guys. Congratulations, again.

I'm not showing any further questions at this time. Please proceed with any further remarks.

Once again I want to thank everybody for their long-term support and I want to say our next earnings call, the Q1 2014 earnings call, is scheduled for Wednesday, April 30, 2014.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program. You may all now disconnect and have a great night.