QuickLogic Corporation

Ladies and gentlemen, good afternoon. At this time, I'd like to welcome everyone to QuickLogic Corporation's second quarter fiscal year 2021 earnings results conference call. As a reminder, today's call is being recorded for replay purposes through August 24th, 2021. I would now like to turn the conference over to Mr. Jim Finucchi of Darrow Associates. Mr. Finucchi, please go ahead.

Thank you, Operator, 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. 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 projected 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 recent filed periodic reports with the SEC. QuickLogic assumes no obligation to update any forward-looking statements or information, which speaks as of the 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, and QuickLogic may use these channels to comply with its disclosure obligations under Regulation FD. A copy of the prepared remarks made on today's call will be posted at QuickLogic's IR webpage shortly after the conclusion of today's earnings call. I would now like to turn the call over to Brian.

Thank you, Jim. Good afternoon, everyone, and thank you all for joining our second quarter fiscal 2021 financial results conference call. I am pleased with the progress we continue to make on the transformation of our business. In the second quarter, our revenue grew to $2.9 million, up approximately 30% sequentially, and reaching the highest level since the first quarter of fiscal 2019. During the quarter, we delivered an eFPGA IP core to our first full-license customer using our soon-to-be-announced automated IP generator flow that integrates open-source software with our three decades of experience delivering programmable logic. In addition, we significantly grew both FPGA and eFPGA opportunities, which bodes well for our future revenue performance. We are now at the tipping point for scaling this new FPGA and eFPGA approach much more broadly, and the timing is coinciding with generally increasing market demand. Our pipeline of new business remains strong, with the vast majority of large opportunities continuing to advance. We also saw acceleration in the number of RFPs and RFQs I discussed previously. Some of the more exciting opportunities include several in the IoT, military, aerospace, and defense markets. We should see the number of wins continue to improve through the remainder of the year, leading to a substantial increase in annual revenue, better bottom line performance, and significantly lower cash usage. With each passing quarter, it is becoming crystal clear that our move to leverage and build upon the open source tool model continues to be the right move for QuickLogic. Artificial intelligence and machine learning technologies now power a rapidly expanding range of products and applications. The advantages of open source tools, including decentralization, cost efficiency, transparency, and customization, are things we recognized early on and have been actively advocating. We remain confident we are on the right path and that our results over the next few quarters will show continued progress. Recently, several of the largest semiconductor and related companies have discussed issues around their supply chains and corresponding impact on revenue. While we have not seen these same conditions affecting our business to the degree others have discussed, we are seeing increased lead times for certain packages. We are reacting to this in several ways, including carrying additional inventory to provide some buffer, as well as communicating longer lead times to our customers and distribution partners. We continue to monitor and will adjust our business based on these evolving conditions. Before I get into my more detailed overview of our quarterly progress, I want to provide an update on the status of formalizing a strategic initiative with a consortium of partners. You may remember that at the time of our February call, Allsigns pointed to one such initiative being funded by the end of February. Although we have a signed Memorandum of Understanding and our discussions continue to move forward, the funding of that initiative has not yet closed. We will provide further updates when there is meaningful progress. Now, I will move the discussion to some of the recent events that reinforce the themes we have discussed recently. Our Sensible subsidiary had some important news during the quarter. First, Sensible announced that it has partnered with global semiconductor company Microchip Technology to simplify the development of artificial intelligence code for smart industrial, consumer, and commercial edge IoT applications. Microchip is using Sensible to create an automated design flow. These tools can easily tap into sensor data from the MPLAB X IDE and generate machine learning models that transform physical sensor endpoints into application-specific intelligent sensors. The agreement is a further testament to the robust Sensible analytics toolkit and its capabilities as more top-tier semiconductor companies and OEMs look to add machine learning to their existing designs in may we announced the joint development of an ai enabled industrial iot solution for predictive maintenance applications with our customer ai sensing the solution is based on our quick ai platform which includes the ultra low power eos s3 multi-core sensor processing soc quick feather development kit and Sensible Analytics Toolkit for endpoint AI applications. Through this powerful set of technologies, AI sensing has developed a vibration sensor that employs artificial intelligence and machine learning techniques to intelligently monitor equipment status and identify and signal when different fault modes occur, often called predictive maintenance. I wanted to highlight this specific example to further demonstrate how this combination can be used by companies to develop a near infinite set of AI and ML applications. One other note on Quickfeather. Our order demand remains strong as we have been averaging over two dev kits sold per day so far this year. By the end of Q2, we had sold well over 1,000 boards. As an update to our SparkFun initiative, They have created a version of Quickfeather called Thing Plus EOS S3 that was launched on CrowdSupply. Users can implement some interesting examples with QuickLogic, Sensible, and Google's TensorFlow Lite AI software using this dev kit. This is a perfect example of convergence of multiple platforms into one product that we can sell to a broad set of customers. Board started shipping in Q2, and we ended the quarter shipping more than 100 kits and are seeing no let up in demand. Our distribution channels expanded in the June quarter as we announced new partnerships and agreements for both QuickLogic and Sensible. Sensible signed a worldwide distribution agreement with Digi-Key Electronics. Through the agreement, Digi-Key now offers the basic edition of Sensible's analytics toolkit globally for customers who need a complete development workflow for data collection, labeling, model generation, and test validation of embedded AI. Moreover, we are in the process of adding QuickLogic devices and dev kits to Digi-Key shortly. In doing so, our products will be available via two of the most popular worldwide electronics distributors, Digi-Key and Mouser. Those are some of the recent highlights I wanted to address. Now, I want to briefly touch on a few areas we have discussed in recent calls. Our QuickLogic Open Reconfigurable Computing, or CORQ, initiative that was launched last year continues to gain traction. As a reminder, we are taking some of our proprietary technology and combining that with the open source tools that are being developed specifically for FPGA technology. We currently have some initial support on a couple of different devices and IPs that we control, and I expect it will only grow from there. In addition, we continue to see growth in the SAS software and IP licensing side of our business. including our embedded FPGA programmable technology and our Sensible AI software platform. Our primary focus for Sensible has been building out the platform with different partner companies, some of which include multinational microcontroller companies like STMicroelectronics and NXP, and more recently, Silicon Labs and Microchip. Lastly, Sensible's integration with Google's TensorFlow Lite AI software framework has been going according to plan. A lot of good things are happening as we build out our ecosystem, and I am confident these efforts are going to lead to customers signing up for full SaaS or taking full licenses of our technology in the coming quarters. Work on our embedded FPGA initiative has accelerated after we joined the DARPA toolbox earlier this year. We were invited to join this specifically because of our work in the open source FPGA area. A question I often get asked is, why would DARPA care about FPGA technology? You must remember the US government and defense contractors and companies that create those types of products are buying hundreds of millions of dollars a year in FPGA technology to be used across various applications. They include items such as flight control systems, communications processors, and more. It is true that many of these companies tend to also design their own custom ASICs. But what we are seeing is the beginning of the evolution that over time, we believe will be the blending of ASIC and FPGA into the same chip. This can't be done unless the FPGA that was a discrete chip is now an IP to be integrated into an ASIC. This embedded FPGA IP technology is one of our core competencies where we have a distinct advantage, one which we are building on for the future. Excuse me for one moment. I'm back. Progress with Amazon continues with our design work with the Alexa voice services. The customized design kits were fully certified earlier this year. Designers can prototype a proof of concept using the Alexa wake word kit, and at the heart of the board is our low power technology. They're all very reasonably priced, easy to use, and they're all based on our open source Quark software tools. The proliferation of these kits is about getting the technology out into the masses. The open source tools platform has many advantages, including decentralization, cost efficiency, and customization. Things that we recognized early on and had been actively advocating. In fact, our own Cork initiative has leveraged a complete set of open source tools and platforms. That effort has dramatically broadened our potential user base and increased design activity for our devices. We are pleased to see others recognizing the benefits of this approach, which should broaden the available market over several years. Our smartphone business has been one of the strengths of fiscal 2021, with our technology now embedded in 10 handsets, including several 5G-related phones. We expect one or two additional models to come out before the end of the year, further solidifying our growth in the smartphone area. Regarding our mature product segment, we saw a healthy jump in revenue from the prior quarter. This was due primarily to strengthen our military and defense customer base, coupled with the fact that we have been proactively maintaining an inventory from which we can quickly service customer demand. There is no question our mature product business has been significantly impacted by the COVID related disruptions, especially around the civilian aerospace market, where one of our largest customers, Honeywell, is a large player. While global air travel is beginning to pick up with the recent upswing in COVID cases across many parts of the world, we must remain cautious in our outlook for a mature business. As such, we maintain that our mature product revenue will be roughly flat with 2020. The last 18 months have been an extraordinary time for all of us. The headwinds for QuickLogic in our industry have been changing. However, we are starting to see green shoots across multiple parts of our business. While it is still too early to claim victory, our Q2 revenue growth and expected significant sequential improvement in Q3 are a testament that the reinvention of QuickLogic is translating into significantly better financial results. Finally, we have all seen the recent rise in COVID cases due to the proliferation of the Delta variant. Safety of our team and customers continues to be the most important priority for me, And at this time, I would again like to thank the QuigLogic team members for their continued dedication and resiliency during these unprecedented times. With that, I will turn the call over to Anthony.