QuickLogic Corporation

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 25th, 2021. I would now like to turn the conference over to Mr. Jim Finucchi of Darrow Associates. Mr. Finucchi, please go ahead.

Thank you, Hillary, and thanks to all of you for joining us. Our speakers today are Brian Faith, President and Chief Executive Officer of 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. 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 into production shipments, timing and market acceptance of its customers' products, scheduled changes and projected production start dates that could impact the timing of shipments, the company's future evaluation systems of broadening the number of our ecosystem partners, and expected results in 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. QuickLogic assumes no obligation to update any forward-looking statements or information which speak as of their respective dates 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 posted an updated financial table on our IR webpage that provides current and historical non-GAAP data. Please note, QuickLogic uses its website, the company blog, corporate Twitter account, Facebook page, and LinkedIn page as channels of distribution of information about its business. Such information may be deemed material information or and QuickLogic may use these channels to comply with the disclosure obligations under Regulation FD. A copy of the prepared remarks made on today's call will be posted at QuickLogic's IR page shortly after the conclusion of today's earnings call. And with that, I would now like to turn the call over to Brian. 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. In Q1, we introduced new products, added strategic partnerships, and we're invited to become a founding member of a new industry organization that will shape and define the FPGA industry based on open source technologies for years to come. The first quarter revenue, while within the guidance range we gave in February, was still held back due to ongoing COVID-related issues with certain customers and the broader capacity and supply chain issues in the semiconductor industry that have been echoed by many companies recently. Although we have seen lead times nearly triple, they are not to the extent as certain markets like automotive, where the supply chain is most constricted, with some lead times exceeding a year. There was also one six-figure IP licensing deal that we thought we would recognize in Q1. This revenue will be recognized in Q2. Through a combination of aggressive marketing efforts, increasing open source penetration and differentiated products, We have seen an order of magnitude increase in our pipeline of new business opportunities, many of which would start contributing revenue in 2021. This new activity reinforces my confidence that we will achieve our financial goals this year. Anthony will summarize our quarterly results in a few minutes. Before I get into my overview of the quarter, I want to provide an update on where we are with formalizing a strategic initiative with multiple partners. At the time of our February call, all signs pointed to one such initiative being funded by the end of February. With that funding in place, we would have been well on our way to an initial takeout later this quarter. Through a series of unforeseen changes, the funding of that initiative has not yet closed. So while we have a signed Memorandum of Understanding, or MOU, we await the funding piece, which we currently believe could happen before the end of summer. One of the positive outcomes of this initiative is that we have clearly established QuickLogic as the leader in open source FPGA technology. That recognition has resulted in multiple RFPs and RFQs totaling tens of millions of dollars in the last six weeks alone, many of which are with well-known entities. If we are successful with these opportunities, it could lead to accelerated financial performance in the second half of this year. While we can't predict how many of these proposals will be accepted, I wanted to share the information as another proof point to our growing pipeline of business from our transformed business model. Turning now to the first quarter, we made several announcements that I wanted to expand upon. In February, we announced the availability of an Amazon-qualified reference design that empowers OEMs and ODMs to evaluate and develop their own smart, curable products quickly and easily. This kit integrates the Alexa voice-initiated close talk experience, enabling a broad set of battery-powered applications to communicate directly with Alexa for a multitude of use cases. For those who have followed QuickLogic for some time, you know this was a voice-activated project we had been working on for over a year. The process took longer than we had initially expected, mainly due to COVID-related issues which affected engineering integrations as well. Related to our open source initiative, in March, we launched a new development that manufactured and sold by SparkFun, a popular online retailer of electronic kits and components. The launch was done exclusively on CrowdSupply, a well-known online distribution platform, and we have seen orders for more than 100 kits, which we expect to start shipping in early June. Expanding our addressable markets and presence in the marketplace has been a primary focus of our team since the start of our transformation. As the first programmable logic company to actively contribute to a fully open source FPGA platform, we have undertaken multiple strategic initiatives to broaden the served available market for our technology in a vastly more scalable way. In our February call, I mentioned how we were working with the University of Utah on ideas regarding how to integrate advanced Summit Connector layout automation techniques into our FPGA IP generator tool called Borealis. The initial results from this DARPA-funded research have exceeded our expectations. Not only has it led to a dramatic reduction in the time it takes us to target a new process node with our eFPGA technology, but it also brought us an invitation to join the DARPA Toolbox Initiative. This invitation represents a significant milestone as now our technology becomes broadly available to developers working on DARPA-related research projects, quite a large pool of potential customers, as you might imagine. We have significantly expanded our partner ecosystem since the beginning of the year. We now have working relationships with several leading companies and distributors in the AI and IoT space, including Silicon Labs and Google's TensorFlow group. and have a handful of other unannounced partnership activities with several worldwide semiconductor leaders. In addition, we signed a global distribution agreement with Mauser Electronics. With their global footprint and large stock of parts, working with Mauser makes it easier for people to buy and use our products. Due to confidentiality, I can't say what we are doing with each partner. However, I can share that many are working with QuickLogic and Sensible on AI-related activities with the goal of bringing solutions to market this year. Partnering with these third parties is about getting more Sensible seats into the market. And through the launch of our Sensible Community Edition, which we are targeting to end Q2 with around 500 new users of the toolkit, these multiple partnerships are beginning to blossom and will be vital to our future growth. While our history remains as a semiconductor company, as I have noted in recent calls, our open source initiatives, which will build our IP licensing revenue, will be the pathway to faster and more profitable growth. The software subscription revenue with IP licensing is very high margin business with a long tail. And while the revenue ramp is starting slowly, I expect it to pick up in the second half of our fiscal year. The FPGA platform, combined with the open source initiative, is increasingly viewed as a critical technology given both the scarcity value of the technology and continued geopolitical uncertainty. When combined with the talk from Washington of the need to onshore more semiconductor development, we believe that future trends are all favorable for QuickLogic. On the open source front, last week, we launched a new sensible open source initiative, which integrates with Google's TensorFlow Lite for microcontrollers and expands the sensible toolkit to the universe of AI developers through the TensorFlow neural networks. The growth of intelligent IoT endpoints is almost limitless. Edge AI alone will enable tens to hundreds of billions of units in the coming years. Implementation of edge inference applications in these resource-constrained devices is commonly referred to as tiny machine learning or tiny ML for short. Sensible is uniquely positioned to support this tiny ML approach. Through the Sensible open source initiative, we are addressing the key bottlenecks to AI deployment by streamlining the process of collecting sensor training data and making AI code understandable and supportable. Our quick feather initiative is taking flights. Since the start of 2021, we have received orders for close to 800 quick feather development kits and have sold close to 1,100 boards in the last year, a factor of likely 10x over the previous 10 years. The great start we have for the first part of the year in anticipation for an accelerated pace of dev kit sales over the remainder of the year makes me confident we will achieve our goal for 2021 to ship more than 2,000 dev kits, continuing the proliferation of our devices and software into the masses, leading to future device revenue. Recently, we announced QuickLogic was invited to become a founding member of the Open Source FPGA Foundation. This invitation is yet another endorsement of QuickLogic's leadership in being the first FPGA company to actively drive an open source initiative. The group includes semiconductor industry veterans, widely recognized academics in their field of study, as well as DARPA. This organization expands the market opportunities and is helping people making a buying decision quicker and easier. In fact, we are finding several new leads that are very well qualified. In looking at the other parts of our business, our smartphone revenue remains strong. While we did not add any new phone wins in Q1, Our smartphone customer has placed purchase orders through September, giving us nice backlog visibility into Q3. We are working on a few new programs with this customer, and I am confident we will see anywhere from two to four more models with our technology come to market over the course of this year. This would be in addition to the 10 devices currently using our technology. Lastly, in our mature segment, the COVID-19-related issues remain a challenge, especially for our largest mature product customer. Revenue from this segment was down sequentially, as expected, and there is no change to our outlook for mature product revenue, as we continue to expect it will be roughly flat with 2020. As you can tell, we are very busy with activities around our transformation. While each quarter will have its challenges, there are many positives coming through that are not yet showing up in our financial performance. I am confident this will change beginning in the second quarter. Before turning the call to Anthony, I want to personally thank the QuickLogic team for their tireless efforts as we work through the COVID-19 challenges. The conditions in our home county have changed dramatically for the better, and I am finally sensing we may be getting closer to the time when our team can return to the office on a more regular basis. With that, I will turn the call over to Anthony.