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 2022 earnings results conference call. As a reminder, today's call is being recorded for replay purposes through March 6, 2023. I would now like to turn the call over to Ms. Allison Ziegler of Darrow & Associates. Ms. Ziegler, 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 related 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 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 discussion 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 to 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 on 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, Alison. Good afternoon, everyone, and thank you all for joining our fourth quarter and fiscal financial results conference call. Q4 was the culmination of a pivotal year for QuickLogic. Revenue of $4.1 million was in line with the expectations provided during our third quarter call. On an annual basis, we increased our total revenue by approximately 28%. More importantly, we grew our new product revenue by 50% and we delivered our best non-GAAP operating performance in the last 10 years. These results are primarily driven by new wins on our EFPGA IP-based products, continued shipments of smart connectivity and display products, and licensing of our Sensible AI software platform. I would like to thank the QuickLogic and Sensible teams for their incredible drive and determination. Together, we had many significant accomplishments for the company in 2022. Looking at some of the year's highlights, Sensimal recently signed a significant deal with a top-tier semiconductor company to integrate a Sensimal-powered solution to address its own customers' demand for AI at the IoT edge across its broad microcontroller line of products. This private labeling of the Sensimal toolkit further validates our technology and provides significant revenue potential as a result of their large installed customer base and sales force. And since this one is not exclusive, there could be additional similar opportunities as well. Also in 2022, we signed our largest EFPGA contract ever and for the first time became a prime performer for the U.S. government to develop new strategic radiation hardened FPGA technology. The program is expected to continue to be the largest contributor to revenue in 2023, with the anticipated notification of our next milestone in the summer upon successful performance of the base contract and at the discretion of the US government. As a reminder, the contract allows for options totaling approximately $72 million over the span of four years. On the strength of our numerous EFPGA IP-based opportunities, our sales funnel now is over $118 million. Included in this number are deals for both EFPGA IP as well as bespoke or semi-custom device development that incorporates our EFPGA IP. These deals span numerous foundries, process technologies, and end markets. While a funnel of $118 million is the largest in QuickLogic's history, I want to emphasize that this does not include the entirety of the Strategic Radiation Hardened FPGA Technology U.S. Government Program. nor does it include any of the possible device sales to the defense industrial base customers. We believe this market to be several hundred million dollars in size and our intent on capturing our share of it in the coming years. The increased diversity of our funnel and the magnitude of the deals makes us confident of exceeding our organic sales growth target of 30% in 2023. One of our unique strengths, that is starting to pay dividends is our ability to offer a full spectrum of solutions ranging from EFPGA IP all the way to full chip designs which incorporate that IP. A question I'm often asked by investors is, what is driving your sales funnel growth, especially during these uncertain economic times? To answer that question, I'm going to share something a Fortune 500 CEO recently shared. They are investing in OPEX, to save OpEx. Both our Sensible and EFPGA-based products enable this. Sensible automates the process of developing AI for Edge IoT, saving companies from the high fixed cost of employing large teams of data scientists. Our EFPGA IP enables our customers to bypass the need for a very costly redesign of their SOC or ASIC to address new design requirements. Furthermore, Because our new Australis IP generator is highly automated, we can design and deliver EFPGA IP faster and more cost-effectively to our customers. Again, investing in OpEx to save OpEx. I will also expand on the EFPGA IP-based business model a bit further, as recently outlined in our latest investor presentation. We have multiple revenue sources within this product category. The primary ones being design services, IP license, royalty, and finally storefront for device sales. Design services is how we monetize the R&D resources to develop our IP or bespoke devices for a customer, typically recognized as we do the engineering work. IP licenses are typically one-time events, recognized with the delivery of our IP to a customer. Royalties are typically a small percentage of the final device ASP, recognized as our customer ship devices that include RIP. And finally, storefront simply means that our customer is buying a finished device from us. This could be because they lack the expertise in developing EFPGA-enabled products, or it could be that they don't have the supply chain in place to produce and test the devices for volume production. We've had this supply chain and expertise in place for decades. and can monetize this value with our customers. I am convinced this is one of the many reasons why we are winning opportunities to be more than just an IP provider. We began to see a confluence of events in 2022. Increased market appetite for programmable logic, our focus on non-consumer markets such as aerospace, defense, industrial, and IoT, and the tremendous operating leverage we have from our investments in automation. The significant improvement in top line and bottom line results in 2022 are just the tip of the iceberg. And I believe we will continue to grow faster than the market, achieving positive quarterly non-GAAP operating income by mid-year, as well as annual profitability for fiscal 2023. Now let's review several specific initiatives we have discussed on prior calls. In November, I shared that we had taped out a new device for a customer that incorporates our EFPGA IP. While we had initially planned to ship prototype units for this device at the end of Q4, the outsourced wafer fabrication cycle took much longer than planned, and we just recently took receipt of the package test chips. Our engineering team is in the process of validating the devices now. Due to where we are in the quarter, we are assuming revenue from these test chips will move from Q1 23 to Q2-23. Due to the confidentiality requirements, I am not allowed to share any further details on this specific design win, other than I believe it represents tens of millions of dollars in potential device revenue starting in a couple of years. One of a number of contributors to our pipeline growth is a new government-focused EFPGA IP-based contract targeting a 12-nanometer process node. This is our first contract for the 12-nanometer process node. We believe there will be several more during this fiscal year. We expect to recognize revenue from this contract across 2023, beginning this quarter. The use case for the EFPGA IP is very similar to the use cases we jointly developed and co-published with ETH Zurich, namely as a coprocessor to a RISC-V core, codenamed Arnold, using the Global Foundry's 22 nanometer FDSOI process. Earlier this month, we released a new version of our Aurora eFPGA development tool suite with expanded language support. The Aurora 2.1 development tool suite is based on our fully open source implementation for scalability, longevity, and full code transparency. SoC developers can combine the advantages of open source tools with the dramatic flexibility benefits of embedding FPGA technology into their devices. to improve device life cycles and enhance profitability. To accelerate top of funnel growth, we are expanding our sales channel and announced EFPGA IP sales partnerships with Andy's Technology Corporation and Yuxin Layout Technology. Moving to chiplets. There has been an increasing amount of attention in the market for chiplets, and we continue to engage with customers interested in this approach to counter the incredibly high cost of custom silicon development. There are chiplet opportunities in our sales funnel, and we do expect to generate some revenue this fiscal year from either design services and or IP licensing that would fall into the chiplet category. While we have reduced our focus on the mobile phone business, we continue to believe we are being designed into new models of phones that will ship well into 2024. That being said, our primary smartphone customer is still digesting their inventory position as they continue to see market weakness. We expect this inventory digestion to continue through at least Q2 of this year. Finally, both our display bridge amateur product segments are being impacted by well-publicized macroeconomic factors, which we believe will reduce the current quarter demand by as much as $500,000 from the prior quarter. Mature products will continue to be an integral part of our revenue profile and contribute to gross margin uplift, even though our path to profitability will primarily come from EFPGA IP-related design wins. Before turning the call to Elias, I want to provide our revenue outlook for Q1 and offer a peek into the remainder of 2023. As discussed earlier in my prepared remarks, we have made significant progress in building our software and IP-related businesses over the past two years. This groundwork has led to a diverse and growing pipeline, which supports our current expectation for revenue in Q1 to be approximately $4.3 million plus or minus 10%. This incorporates our forecast for an aggregate sequential decline in our smartphone business and mature product segment of around $500,000. Our current forecast has Q1 as the only quarter below $5 million in revenue, putting us on pace to increase fiscal 2023 revenue by more than 30% over fiscal 2022. And assuming current gross margin and operating expense levels, I believe we have a good chance of seeing positive non-GAAP operating income starting in Q2 of 2023, as well as on an annual basis. Let me now turn the call over to Elias for a review of the financial results. Elias, please go ahead.