QuickLogic Corporation

Ladies and gentlemen, good afternoon. At this time, I'd like to welcome everyone to QuickLogic Corporation's fourth quarter and fiscal year 2021 earnings results conference call. As a reminder, today's call is being recorded for replay purposes through February 23, 2022. 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 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 stock performance, design activity, and its ability to convert new design opportunities into production shipments, timing and market acceptance of its customers' products, scheduled changes in production start dates that could impact the timing of shipments, the company's future evaluation systems, broadening the number of 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 for the SEC. QuickLogic assumes no obligation to update any forward-looking statements or information which speak 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 fourth quarter and fiscal 2021 financial results conference call. Q4 marked the culmination of a very strong year. Revenue of approximately $3.7 million was within our initial guidance range, and we generated cash from operations for the first time in many years. On an annual basis, we delivered significant across-the-board financial improvement. Revenue of $12.7 million was approximately 47% higher than fiscal 2020. In addition, we saw substantial growth in our gross margin, enhanced bottom line performance versus a year ago. Our financial results in 2021 represent the progress we are making across all aspects of the business. For a successful transformation to a platform company focused on enabling more artificial intelligence through our innovative open source approach to programmable logic and AI software. I would like to thank the QuickLogic and Sensible teams for their continued dedication and hard work. Our momentum heading into fiscal 2022 is strong, with demand for our products and technologies increasing. I expect we will deliver better results for our company and shareholders this year. Now turning to the business review. We had many key accomplishments in 2021 that will support our long-term upward trajectory. These include signed new eFPGA contracts totaling millions of dollars. Introduce the Australis eFPGA IP generator, ushering in a new era of mass customization of FPGAs and embedded FPGA IP by improving the time to IP delivery from years or months down to weeks or days. Broaden the reach of our sensible analytics toolkit through the leverage of new microcontroller partners Infineon, OnSemi, Silicon Labs, and Microchip, adding them to the list of existing partners Nordic Semi, NXP, and STMicro. Significantly expanded our global distribution partnerships for both QuickLogic and Sensible, adding Mouser and DigiKey Electronics as new partners, and created a pipeline of new opportunities in the tens of millions of dollars entering 2022. The process to reach this point has not been easy. but the momentum is in our favor. I am as confident as ever that the foundation established in 2021 is sustainable. Now I want to move into some of the items that drove our fourth quarter results and review elements that I expect to propel our fiscal 2022 growth. First, last week we announced several long-time institutional investors again contacted me about making a strategic investment in the company. They were joined by a few new investors who had been following QuickLogic for some time and had previously expressed their desire to support the company. The interest we received was more than we could have hoped for. This private placement raised gross proceeds of $1.48 million and was done with no market discount to the share price on the day of the agreement. The funding comes on top of the approximately $1.1 million raised last fall. and provides us with additional capital to further drive our open source growth and profitability objectives. I want to personally thank this group of investors for their dedication and support over many years. Now turning to some key elements since our last call. Our Astralis eFPGA IP generator is turning out to be the game changer we thought it could be when introduced last year. As I mentioned previously, Astralis automates and accelerates the porting and development of IP cores, reducing a design time of a year and a half to a couple of months or even weeks. Through Astralis, we can customize eFPGA IP for any foundry or process technology within days if it is already supported or within three months if new process technologies are used. Compare this to the years it took using traditional engineering design methods. Our approach is unique and companies are taking notice. Fueling this demand for Astralis is the rapid shift for embedded FPGA IP cores and FPGA devices that are supported by open source tools. During Q4, we completed a project on a new Foundry process node combination with delivery of IP in just two months. This represents a record for us and is significantly faster than anything we have done before. As we improve on this process in the future, we believe that this timeline can improve even further. Being nimble and helping customers get product to market faster and cheaper means we can operate at the pace of the customer and price it in a more cost-effective way, which opens up a much bigger served available market. This new approach has already been validated with several contracts totaling millions of dollars. Some of these have been announced, including the $2 million win last year. Others are smaller but equally significant in terms of building momentum in the business. Regarding the customer behind the $2 million agreement, we recently closed a second contract with them related to a new design and possibly a third in the coming months. I am offering this additional context as further validation that we are involved in many new opportunities where both current and potential customers are wanting eFPGA technology to embed into a chip that they're planning to bring to market. Furthermore, earlier this month, eTopos Technology announced a partnership with QuickLogic and Open5 to develop a platform of base IP that can be easily integrated into chiplets with minimal risk and reduced development costs. The chiplet ecosystem is developing now with major semiconductor companies and system OEMs participating. According to one market research report, The worldwide chiplet market is forecasted to be approximately $1.5 billion in 2021, growing to nearly $50 billion by 2031. This represents a compound annual growth rate of more than 40% over the next 10 years. The backbone of this partnership is the EFPGA IP created by our Astralis tool, which is a primary enabler for resulting chiplets being brought to market with lower cost, and lower risk with silicon-proven IP. The Utopus relationship is just one example of what we believe will be many more working relationships this year. Another piece of our foundation that is often overlooked is our participation in the DARPA toolbox. DARPA funds a lot of different semiconductor or system research with many defense industry prime contractors, or what are known as DOD primes in the U.S. The near seven-digit EFPGA-related contract that we won in fiscal Q4 2021 is related to the defense market. We are targeting to expand that first contract to what could be in the millions of dollars over a multi-year period. I should point out for those who are newer to QuickLogic that we have a long history serving the defense industry. In fact, we currently sell into all of the top five and eight of the top 10 DoD prime contractors. We have been serving the defense space for a long time, and I think this really speaks to the quality, reliability, and trust that the defense industry has in us. From a revenue standpoint, it is important to remember that when our eFPGA IP products go to a production system, we typically receive both a production IP license and royalty revenue. I like to use the analogy that IP revenue is like money in the bank. that will start paying interest in 12 to 18 months after receipt. That interest is in the form of royalty revenue when customers start shipping ICs with QuickLogic EFPGA IP. I wanted to share some of these details to give clarity to the comments I have made before and reinforce that we are seeing sharp increases in RFPs and RFQs for our EFPGA IP. And unlike hardware design wins, There is no annual competition risk of losing the design or having to lower device price and gross margin. There is also no inventory or risk and, of course, no cogs on royalty, just an annuity stream that should begin late 2022 to early 2023 and build from there. Another reason we are confident in our growth outlook was the recent announcement of the large display bridge purchase order. Prior to the recent global supply chain problems, Our display bridge revenue had been trending down as expected for the reasons discussed in prior calls. The supply issues have turned into an opportunity for us, and the constraints have created a worldwide shortage of certain display bridge semiconductor solutions. Since our announcement, demand for our ArcticLink 3 BX display interface devices have picked up even further, with several of the world's largest consumer product suppliers reaching out to us. We have several months of inventory ready to ship. We will supply these requests and invest to build more devices based on customer demand. With the continued uncertainty across the broader supply chain making DisplayBridge devices hard to obtain, I am confident our DisplayBridge business will see healthy demand for a good portion of 2022. We are also seeing continued momentum in other parts of our business. New product development with our primary phone manufacturer remains strong. The customer is using our EOS S3 and its next generation 5G-enabled devices, and we believe there will be up to two more phone wins in the first half of the year. This customer is also navigating through the supply chain challenges. This will likely limit our anticipated shipments this quarter and the number of opportunities we could have if the supply environment were normalized. Related to the supply chain commentary, We have not experienced the same level of constraints that are prevalent in the IC-related industry. Our pressure point is around the assembly and test part of the chain. Capacity for assembly and test is tight, and our primary vendor is raising prices, which is not unusual in this environment. To counter this situation, we increased our committed inventory for finished goods to help ease supply concerns. Our sensible business continues to expand. and we are pleased how the collaborations with many well-known semiconductor companies are progressing. Just last week, we announced that Sensible is teaming with Infineon Technologies to deliver a complete AI machine learning solution for the Infineon PSoC 6 family of microcontrollers and the range of sensors they support. The Infineon partnership follows several other Sensible relationships with leading companies, including OnSemi, Microchip Technology, and Silicon Labs, who are leveraging the Sensible Analytics Toolkit to add local intelligence to their IoT designs for smart home, industrial, fitness, and other applications. Finally, in our mature product segment, without good clarity on how some of our mature product customers are handling their own supply chain challenges, it is difficult for us to see how mature revenue will be much different in the first half of fiscal 2022 than it was in second half of fiscal 2021. To summarize, 2021 was a significant inflection point in QuickLogic's history. Our software and IP-related sales are accelerating, the number of new opportunities is expanding, and our balance sheet is strong to support our expected growth. I could not be happier with the position QuickLogic is in and believe our best days are yet to come. And now it is my pleasure to introduce Elias Nader. who joined QuickLogic earlier this month as our Chief Financial Officer and Senior Vice President of Finance. We are fortunate to have someone of Elias' caliber join the company. His financial discipline and wealth of experience in finance, investor relations, and technology businesses, including semiconductors, IP, and SaaS, are a strong complement to the executive team. In his short time, Elias played a key role in the recent private placement and has proactively worked with the team to identify areas where we may be able to reduce costs and increase supply. In addition, Elias will have an active role in our investor relations efforts. His longstanding relationships with several of the financial analysts and investors following QuickLogic should be a plus. I look forward to partnering with Elias as we continue on our path to growth and long-term profitability. I also want to thank Anthony Contos for his contributions leading our finance team for the last several months. We all wish him well in the future. With that, I want to welcome Elias. Elias, please go ahead.

Thank you, Brian. Good afternoon, everyone. I could not be happier to be joining you and the QuickLogic team during this very exciting time for the business. I see a tremendous opportunity as our addressable markets expand and our software and SaaS offerings become a larger part of our revenue. This is also an opportunity to continue my working relationship with the investment community currently following QuickLogic that I've engaged with for several years. The growth trajectory and opportunities to advance into new markets are clear, and I look forward to meaningfully contributing to the next stage of QuickLogic's evolution. Let's now turn to the recent financial results. For the fourth quarter of fiscal 2021, revenue was 3.7 million. This was slightly below the primary estimate we offered last month due to a determination that a small amount of revenue would be deferred into Q1. This compares with revenue of approximately 3.9 million in the third quarter and 2.5 million in the fourth quarter of 2020. are up 52% from the same quarter last year. Within our Q4 revenue, sales of new products were approximately $2.7 million. This compares with about $2.8 million last quarter and $0.8 million in the fourth quarter of 2020. Our mature product revenue was approximately $1 million compared with $1.1 million last quarter and $1.7 million in the fourth quarter of last year. In Q4, we had four customers who each contributed, who each accounted for 10% or more of our revenue. Non-GAAP gross margin in Q4 was 60% compared with 73% in the prior quarter and 52% in the same quarter of 2020. Just a reminder that last quarter our product mix included higher EFPGA and other services revenue leading to the higher gross margin. Non-GAAP operating expenses for Q4 were approximately 2.7 million. The lower quarterly operating expenses were mainly due to allocation of certain R&D expenses and to cost of goods sold, which kept gross margin below our original expectations. The Q4 results compare with 3.2 million in Q3 and 2.9 million in the fourth quarter of fiscal 2020. Non-GAAP net loss was $0.5 million or loss of $0.04 per share based on 11.8 million shares. This compares with a net loss of $0.04 million or $0.03 per share last quarter and a net loss of $1.7 million or $0.15 per share in the fourth quarter of fiscal 2020. The total cash at the end of Q4 was $19.6 million, flat with the prior quarter. The cash balance also includes the $15 million draw from the revolving line of credit. While the quarter-to-quarter balances were essentially flat, when adjusting for rounding, our balances were up slightly by approximately $25,000, a small but significant milestone in our continued financial improvement. I should also note that the cash position does not include the gross proceeds of $1.48 million from the transaction, which will be reflected in our Q1 numbers. Now turning to the full year fiscal 2021 results. Total revenue was $12.7 million, up 47% when compared with $8.6 million in fiscal 2020. New product revenue was $7.8 million, compared with $2.8 million in the prior year. This reflects higher sensor processing and FPGA IP product sales. Mature product revenue was 4.9 million, compared with 5.9 million in fiscal 2019. For 2021, we had four customers that each accounted for greater than 10% of our total sales. Gross margin for 2021 was 61%, up meaningfully from 51% in 2020. The continued increase in software and IP-related revenue drove the annual improvement. And while revenue was up 47% from the prior year, our continued focus of cost controls resulted in operating expenses decreasing slightly to $12.7 million from $12.8 million in 2020. The combination of strong revenue growth, higher margins, and slightly lower operating expenses translated into our net loss declining to $4 million, or $0.35 per share. a significant improvement from a net loss of $8.7 million or $0.88 per share in 2020. Now moving to our guidance for the first quarter of fiscal 2022, which will end on April 3rd. The revenue guidance for Q1 is $4 million, plus or minus 15%. Revenue is expected to be comprised of approximately $3.1 million for new products, which would be the highest since the third quarter of 2015. Mature product revenues forecasted to be approximately 0.9 million. Based on the expected revenue mix, non-GAAP gross margin for the quarter will be approximately 67% plus or minus 5%. Non-GAAP operating expenses will be approximately 3.3 to 3.7 million. The higher amount compared with the prior quarter is mainly due to the beginning of the year expenses we will incur. For the remainder of the year, we anticipate quarterly operating expenses to be in the low $3 million range. After interest expense, other income and taxes, we currently forecast a non-GAAP net loss will be approximately $0.8 to $1.2 million, or net loss of $0.06 to $0.09 per share based on roughly 12 million shares outstanding. Most of the difference between our GAAP and non-GAAP results is our stock-based composition expense. In Q1, we expect this composition would be approximately $0.4 million. There will be movement in our stock-based composition over the course of the year, and it could vary each quarter based on the timing of grants and estimates related to performance-related awards. For the balance sheet, In Q1, we expect total cash balances to increase between $0.2 million and $0.6 million. The balances will include the recent direct investment and will be partially offset by the higher expenses we see at the beginning of the year. Thank you. And with that, let me now turn the call back over to Brian for his closing remarks.

Thank you, Elias. And again, welcome to the team. These are exciting times for QuickLogic. Through the collaborative efforts across the business, we are positioned to achieve sustained growth through a combination of new products serving larger addressable markets, IP and software sales delivering both immediate sales plus a stream of reliable and high margin revenue, and greater reach through our expanded distribution channels. These factors will be supported by the strongest balance sheet we have had in many years. While we tend to guide one quarter at a time, I thought with this being our first call of the new year, I would give some additional context into our annual outlook. Bolstered by the improved order flow for our display bridge products, increasing new business partnerships driven by Astralis, and new defense programs, as of today, I am more certain we will, at a minimum, achieve the same annual growth as we did in 2021. To take it one step further, I am now seeing opportunities that, if we are successful, could lead to revenue approaching $20 million for the year. which would be the highest since fiscal 2015. The revenue cadence over the course of the year will likely be weighted more to the second half of 2022. When combining gross margin that could remain into the mid to high 60s and operating expenses climbing modestly to support the business opportunities, I am increasingly confident that we can reach profitability by the end of the first half of this year. In closing, I want to thank our key stakeholders, including investors, customers, suppliers, and most of all, the QuickLogic and Sensible teams for their continued support. That completes our prepared remarks. Operator, I would now like to open the call for questions.

At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the start keys. One moment, please, while we poll for questions. Our first question is from Suji De Silva with Roth Capital. Please proceed with your question.

Hi, Brian and Elias. Best of luck in the new role. Thank you. Yeah, you're welcome. I don't know if I caught it there. Brian, did you guide or give a rough guidance of what you think revenue growth would be over 21? I don't know if I missed that.

Yeah, my closing remarks, I was essentially saying that we could see this year being the same growth rate as last year. So we were very close to 50% last year, so 50% this year. And I am seeing opportunities on top of that where revenue could be approaching $20 million for the full year this year.

Great. Thanks for reviewing that. And then would mature be roughly stable in that 22 and new products being driving the growth here going forward?

Yeah, definitely. I think what we're seeing in the prepared remarks is the first half of mature is probably going to be like the second half was last year, so flat to that. There may be some increase beyond that in the second half, but it's a little bit early to tell as we're still seeing our customers wrestle with some of the supply chain challenges on their side. So I think from a modeling point of view, modeling mature flat is probably a good idea. Okay, great.

And then gross margin increasing in the first quarter versus 4Q, is that Is there an underlying indication that there's some EFPGA revenue flowing in to the guidance?

Yeah, we definitely see EFPGIP being a big contributor to the revenue and therefore to the gross margins as well.

Okay, that's very helpful. And then, Elias, you've worked at several companies. How would you think about or talk about the revenue visibility here? How would you frame it at QuickLogic and your ability to kind of see the guidance and being able to hit it? How would you characterize it for us?

Well, having been here just 14 days, it's a good question, Suji. Look, it's pretty decent. I would say we have visibility that's very robust. But, you know, the type of business we have is also a bit complex. So at times you see something that looks pretty good to opine on, and it changes by quarter. So I would say... Give me a quarter or so to wrestle with it, and I'll come back with a better answer for you. But right now, I see good things. I mean, I love the fact that we could grow 50% year over year. That's a big plus. And of course, the things I'm concentrating on, as you know, is simply to look at more opportunities for the company to improve gross margins, find ways to keep costs down and control OPEC so that we're profitable.

Okay, very helpful. And then maybe lastly, Brian, you indicated, I think, maybe EPS break-even in the middle of 22. And from the $4 million of revenue guide and the OPEX, I'm just wondering, and the EPS loss of $0.07, $0.08, what is the revenue level that it would take, I guess the OPEX comes down, right, to be able to hit that break-even? Are you assuming some inflection to get there or any color there would be helpful on the break-even level from a revenue and other perspective?

Yeah, from my – sorry, Suji, I'll take that if you don't mind. From my perspective, I think we hit that $5 million mark we're there. Remember, you know, beginning of the year, you have expenses. Of course, Q1 is going to be a bit harder to achieve this. But I would say Q2, Q3 is not an impossibility to get there. At $5 million, we could see positive on all levels.

Thanks, guys. I'll step back in the queue. Thanks, Adrian. Of course.

As a reminder, if you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. Our next question is from Martin Yang with Oppenheimer. Please proceed with your question.

Martin, you might be on mute. We don't hear you. Mr. Yang, your line is open.

Can you hear me now?

Yes.

Yes. Good afternoon, Brian and Elias. So first question is on recent private placement. Can you maybe give us more details on maybe what prompted the investors to put in the money in your company now? Is it associated with more specific project or funding in mind or that was more of a generic for general purposes?

Well, I think when I talk to a lot of investors, firstly, and the overriding message I hear is how excited people are about this new business model actually generating revenue now. It's no longer just PowerPoint slides and me getting in front of you at conferences, but you're seeing it flow through on the income statement and the bottom line. And I think with some of these larger wins that we've announced recently and the fact that we announced that $1 million display, which we're in, and sort of readjusting people's expectations for the balance sheet in Q4 ending with positive operating cash, that was the impetus for people to pick up the phone and say, hey, I'd like to put some more money into QuickLogic at this point because I think they're believers, which is why I was personally thanking them in the prepared remarks. So I think that was their rationale for that. Elias, you know a lot of these folks. Do you want to chime in on that too?

Yeah. Hi, how are you? Good. So basically, I think the consensus that I saw in talking to all of them is that they picked up the phone and actually called Brian. This was not solicited by the company. This was them calling us to show confidence in the company and their belief in it. And what turned out to be an exciting discussion clearly resulted in a 1.48 net proceeds. Had we opened it to more people, I'm sure we would have had more, but we kept it at that level mainly because this was not our intention to do any rounds, okay? So just I want to give you color on it. But there's a lot of confidence and belief that, you know, we will get to that stage of profitability and grow this company.

Got it. Makes sense.

My next question. Yeah, hopefully that gave you.

Yes, definitely. Thank you. And my second question is on the allocation of costs from OPEX to gross margin during the fourth quarter. Is that more of an RE-related project? And what contributed to the movement in the causes? With more timing associated with certain milestones, any details will be appreciated. Thank you.

Yeah, you know, we had... we had an R&D amount moved to COGS close to $300,000. And basically that impacted gross margin about 8%. So gross margins have been significantly higher than that. But this was done because it was the right thing to do, okay? And so clearly it's an accounting matter, and that's the best explanation I can give you.

Got it. Thank you. You're welcome.

Our next question is from Richard Shannon from Craig Hallam. Please proceed with your question.

Thanks, guys, for taking my questions. And, Elias, good to work with you again. Hey, Richard. Hey, Elias. Guidance, I may have mistaken my notes here. I think you said guidance of $4 million. Did I catch that the new products are 3.4 million of that with mature being 600,000? Did I catch that correctly?

3.1 new, 0.9 million mature.

Okay. I got that one. Okay, perfect. Thank you for that. Second of all, Brian, when you talk about growth on a yearly basis, this year matching last year, how much will the display bridge increase? products contribute to that? Is a notable amount of the dollar growth here? Is there any way you just characterize the contribution from that?

Well, I think the way the approach we're taking on that, Richard, is we've announced that $1 million win. So that's $1 million out of that growth. We're not counting on other display bridge wins to contribute to that growth percentage I was alluding to on the prepared remarks. So if we are successful in landing more, and I believe we will, because we are talking to some folks that are in a supply chain crunch, then it'll be sort of that difference between the matching of growth percentage last year and the $20 million outlook that we gave you, again, in my closing remarks.

So we're treating this flavor outside of the million upside, put it that way.

Okay. How much more supply do you have to supply above that $1 million when you did the downs already?

I'm going to say we have plenty to handle upside. I do not want to get into specific inventory values on the call because that's just not prudent for me with our customers to do that.

Okay, fair enough then. Maybe, Brian, if you could talk about the pipeline for embedded FPGA. If I caught you prepared and marked you right, you were talking about a sharp increase in RFPs and RFQs. So maybe you just can talk about this in kind of high-level terms. How many opportunities are you seeing out there? What kind of, you know, Tam or Sam, could you describe that you may be addressing in a year or two?

There's a few questions in that one question. So if I forget an answer, just poke me. Okay. So let's dial it back firstly. So in the beginning of last year, in the first half, we announced one EFPGA design win for, you know, a couple hundred K and the second half of the year, we essentially have now talked about $3 million. in EFPGA wins. So market jump in dollar value, doubling the number from one to two. That movement, by the way, is all driven from the Astralis tool and the fact that we can do this much more quickly than we did in the past. So what am I looking at for the first half of this year? You know, we're actively engaged in more than 10 of these embedded PGA IP projects now. And not only is it more than 10, it's a lot of dollars. We're talking multiple seven digits of dollars of uh ip related contracts here and let me give you some other color as i said many times now the old way of us doing ip design easily was a year to year and a half of commitment of our engineering team to go after one foundry process node combination when i stare at this list in front of me of these uh 10 plus opportunities for first half of the year you know eight of them are on different foundry process nodes we've probably done half already The other half we haven't touched yet. Not possible the old way. The new way, we're not walking away from any of these. We can handle this load. So our challenge to our sales team and engineering team is to execute on these and close them. But I'm staring at a nice size funnel here for the first half. Now getting to your question about the served available market size, I think in this year, I will reiterate, I think there's tens of millions of dollars of opportunity that we're chasing here that we can close. And again, this is upfront license back in royalty type business model. The other thing you mentioned though, is like in a couple of years. So not only do I see the IP side of the business remaining in that tens of millions of dollars, which is a healthy IP business, by the way, I can see this actually transitioning into opportunistic devices that we can do as well. And when we started doing devices based on these ports, like in the form of the chiplets that we talked about with Etopos or some of these other customers that are approaching us on something similar. Now we can start not only with the upfront, but we can start getting real revenue on the device sales, not just in two years, but for several years. Knowing these types of customers that we're talking to, we could be shipping devices to them for 10 plus years. So the upside on this whole new capability of being sort of foundry process node agnostic is a huge upside for us. And that's why, to me, it's game-changing for the industry. It's game-changing for us. And we're going to start to see some real financial bottom line results this year from that. We already did in the second half of last year on the top line and bottom line with the second half. But I think we're really staring down a huge amount of opportunity here to close in the first half of this year.

Long answer to your short question. I love the detail, Brian. Thanks for all that. The Australia's Tool, is that something that QuickLogic has exclusive or preferred access to somehow or? Do other suppliers wish to have access as well?

That's a great question, and it's a question I get asked very often. I also get asked, though, are you open sourcing all your knowledge, QuickLogic? So let me answer all of that. So we've said this publicly, but the Astralis capability that we have is actually based on some open source workflows that the U.S. government actually funded as research, and that tool is called OpenFPGA. You can read a lot about it online. You can read a lot about it with the Open Source FPGA Foundation that we're founding members of. So that's essentially a workflow that automates a lot of the hand design process of the old days. Now, there's a difference, though, between what you can get from research-level tools or open source workflows and then bringing into that the experience that we have of building and selling FPGAs and IPs for 30-plus years. to high-quality, high-reliability ruggedized systems like airplanes and munitions and datacom systems and smartphones. So we're actually blending a lot of our know-how on die size, quality, reliability, manufacturing, and scale with the benefit of the automation of that workflow. We are not open sourcing our knowledge, so we actually are retaining a lot of the secret sauce on how you can make automation work for you. And that's really what's giving us this ability to serve all these different opportunities with a fairly small team, being really creative about how we do that. By the way, the other analogy I'd make on this, and I've used it quite frequently with investors, people do question like, well, how do you make money in open source? And so if you look at Red Hat, Linux is open source, right? Anybody can go to GitHub and download that. Red Hat built a very successful, financially very successful business by building proprietary products, support and services on top of essentially an open source operating system that anybody could access. So I liken that we're sort of doing the same thing where yes, there are some workflows that are open source and anybody can go grab it. You could go grab it yourself and take out a chip now. But the question is what makes that product viable from a commercial sense and from a support sense? A lot of these customers that I'm looking at in my list here, They want to do business with a company that knows what they're doing in FPJs, that know that they've been doing it for a long time, and they're going to stand up and support their products. And that's essentially exactly what we're doing, just in a more automated fashion.

Okay. Great, Brian. That's also great detail. One last question for me on the topic of sensible. I just want to get an update here on any way you can characterize, you know, where you sit in terms of number of subscribers, including the ones that are, uh, you know, full license versus kind of a, I don't know if you call it test version or whatever. And then I think in the last call you talked about the potential of, uh, the sensible revenue stream doubling sequentially. Just wondering if you can, if you can follow up that with the, uh, the actual results are.

Yeah. So remember that when I was saying on that last call is, uh, not in the guidance section, but it was more of me just giving directionally where we felt the business was going. So I'm not going to give the exact number on the call, but I will say that, uh, I do see reports on the number of users, the number of licensees that we have. The number of users of the low-cost or the free version I believe now is well into the four digits as far as accounts for that, which is a good sign. Part of that is driven from the fact that we have more microcontroller companies out promoting it very heavily through their sales channel. We do see new customers that are subscribing to the service. I think AI in general is still somewhat new in how people can use AI and deploy AI to bring value to their products, but we're starting to see that sort of crystallize more now, especially around industrial IoT and some consumer wearable applications. Those seem to be still the hotspots for where we see customer opportunities.

Okay, perfect. That's all from me, Brian. Thank you. Thank you, Richard.

Our next question is from Rick Neaton with River Shore Investment Research. Please proceed with your question.

Thank you. Hi, Brian. Hello, Elias. I'm looking at your large increase in deferred revenue as of year end, over $350,000 increase. Is any of that from sensible?

No. No. Okay. It's from a business transaction we did with QuickLogic. Okay. And these happen, by the way. These can happen quarter after quarter, just so you know.

Okay. And looking, Brian, you said, called out the ETAPIS partnership. That's a startup company that is working with an open source partner from Sci-5, is that right? The Open5 system?

Yeah, so Sci-5 is a RISC-V processor IP company. OpenFive is a division of SciFive, and OpenFive actually focuses on chip design services. So if you have an idea for a chip, you don't have a design team, you have funds to go off and do that, you can pay OpenFive to do that chip design for you. And of course, they collaborate with their SciFive part of the business on the IP cores that they may include in that chip. So yeah, the collaboration is essentially Etopus for their semiconductor IP. a very specialized high-speed semiconductor IP that serves sort of the data center communications markets. Open5, they've done several different press releases in the same sort of application space on chip designs. And then I think the value that we bring in this case is that clearly FPGAs are used quite heavily in that market space. And so if you're supply chain constrained from other FPGA vendors or you want to do an ASIC in that market, sort of a mix and match of a topos IP FPGA and perhaps the IP and design services of Open5 would actually make a very good combination, specifically for chiplets. We haven't really talked a lot about chiplets in the past, but it's an emerging segment within semiconductors for the audience, I guess, of the call. Traditionally, chip design is you do one big chip, and it's monolithic, and it's one die in the package. But over time, Moore's Law is not scaling so well. It's incredibly expensive to do monolithic chips that are big, and you need all this IP. So another way of sort of getting the functionality you want is you sort of break that one chip into multiple chips and you stitch them together at the package level. And there's a lot of interest now in the market to do a chiplet-based approach because you can probably lower your R&D costs. You get a lot more flexibility to adapt to market changes. And you probably lower your cost of goods sold as well. So that's the – a lot of actually customers have approached us and the other folks in that group. on chiplets. There's an interest to do it with EFPGA technology, and that's why we felt it was a pretty exciting announcement to collaborate with those folks.

Thanks for that color, Brian. How do you see the RISC-V ISA developing over the next few years, particularly in competition with ARM?

I think it's going to continue to grow really fast. I mean, there's been several companies that have started their whole business on RISC-V cores. The instruction set is open, but the implementations are not necessarily open. Similar analogy to the Red Hat model again. And I think the big thing that's happened since we last spoke as a group here on this call is that Intel came out and said they're going to have a billion-dollar investment fund for IFS ecosystem, Intel Foundry Services. I've got to believe that a large percentage of that's going to go into things like RISC-V. I think they, in fact, joined the RISC-V Foundation in the last couple weeks. And so when you have big players like that and a lot of money going into ecosystem development, you're going to start to see that whole thing take off from an implementation point of view and market share. You know, ARM is a very good processor. It's been around a long time. It's very well known to have a very maturely developed ecosystem. You can't go wrong with ARM. I think there's a lot of companies, though, that are looking at silicon. They're saying, do I really want to buy a standard product that everybody else can buy, or would I like to make some changes to my own, maybe add some instructions that optimize for my system? RISC-V is really built for that whole customization, that notion of mass customization. And so I think the more we get down to the supply chain constraints and people figuring out ways around that and just this whole notion of mass customization, you're going to start to see more people going to RISC-V because it gives them that flexibility. I think what's held it back to some extent has been the ecosystem. But when you throw a billion dollars at something, that can change. I think we'll see that in the next couple years.

Okay. Thank you, Brian. Thanks for those explanations.

Thanks, Rick. Thank you.

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

I wanted to thank everybody for participating in today's call and the continued support. We look forward to speaking with many of you again when we participate in upcoming investor events and again when we report our first quarter fiscal year 2022 results in May. Have a good day. Thank you.

This concludes today's conference. Thank you for your participation.