QuickLogic Corporation

Ladies and gentlemen, good afternoon. At this time, I would like to welcome everyone to QuickLogic Corporation's second quarter fiscal 2023 earnings results conference call. As a reminder, today's call is being recorded for replay purposes through August 22, 2023. I would now like to turn the conference over to Ms. Alison Ziegler of Darrow Associates. Ms.

Ziegler, please go ahead. Thank you, 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, 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 discussions of the risks, uncertainties, and assumptions that could result in these 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 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. Go ahead, Brian.

Thank you, Alison. Good afternoon, everyone, and thank you all for joining our second quarter fiscal 2023 financial results conference call. As noted in the press release issued after market close, our second quarter 2023 results were negatively impacted by the timing of the award for the next phase of the large EFPGA contract announced last year. The first phase of the contract, which was $6.9 million, has been completed successfully. I am pleased to share that this next phase with a total value of $15 million is now in place and will begin generating revenue this quarter with revenue extending into 2024. This second phase is the same total value, revenue recognition timing, and duration we had been expected to finalize during Q2. With receipt of this new contract and new business and other end markets that we are rapidly converting from our sales funnel, we remain on track to grow total 2023 revenue by more than 30% over 2022. We also believe we will report non-GAAP profitability for Q3 and Q4, as well as non-GAAP earnings for the full year 2023. With that opening, let's get into the details. On the continued strength of our numerous eFPGA IP-based opportunities, including a portion of the strategic RadHeart FPGA program, our sales funnel grew to over $140 million, the largest in QuickLogic's history. Included in this number are deals for both eFPGA IP as well as being a storefront for semi-custom FPGA development that incorporates our eFPGA IP. These deals span numerous boundaries, process technologies, and end markets. One of our unique strengths continues to be that we offer a full spectrum of solutions ranging from eFPGA IP all the way to full chip designs which incorporate that IP. As a reminder, we have multiple revenue sources within this product category. The primary ones being design services, IP licenses, royalties, and finally, device sales via our storefront. 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 percentage of the final device ASP and the value contributed by our IP that is recognized as our customer ship devices that include our IP. And finally, storefront simply means that our customer is buying a finished device from us that is designed to their specifications. In doing so, we enhance and expand our customers' capabilities by providing additional expertise and depth, as well as access to the supply chain we have had in place for decades. More than ever before, The fact that we have been a trusted and reliable supplier of FPGA devices is one of the many reasons why we are winning opportunities to be more than just an IP provider. In November of 2022, I shared that we had taped out a new device for a customer that incorporates our eFPGA IP. Revenue from the shipment of these test chips to our end customer was recognized during Q2. Additional engineering work with this customer is ongoing, and we continue to recognize revenue each quarter associated with this design. Due to confidentiality requirements, I can't share any further details on the specific design win, other than I believe it represents tens of millions of dollars in potential device revenue starting in a couple of years. As mentioned on our previous call, one of the 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 recognize initial revenue from this contract in Q1 and expect to recognize additional revenue throughout 2023. Furthermore, during the previous call, I mentioned that we believe this contract was our first of several during this fiscal year. In fact, we now have multiple new opportunities for our 12-nanometer EFPG AIP, totaling several million dollars. Moving to sensible. As we mentioned last quarter, the top-tier semiconductor company that is integrating a private-labeled version of a sensible powered solution to address its customers' demand across its broad line of microcontrollers is nearing their product launch. This private labeling of the sensible toolkit provides significant revenue potential as a result of the company's large installed customer base and sales force. While we remain conservative on what this could mean for QuickLogic, We believe it has the potential to move the needle. As I have noted in the past, this is not an exclusive relationship, which means our engagements with other microcontroller companies will continue. Moving to chiplets. We continue to see customer interest in an EFPGA-enabled chiplet. We plan to issue a press release in the coming weeks related to a specific collaboration on an EFPGA-enabled chiplet with a partner company, targeting the edge IoT and AI markets. We expect to generate initial revenue this fiscal year from chip-related design services and or IP licensing. Concerning our mobile phone business, much like other semiconductor suppliers to the mobile market, we are still seeing softness in demand, likely through the end of this fiscal year. However, we anticipate a rebound once inventory is balanced, as we have been informed that our EOS S3 will be used in new smartphone models that will ship well into 2024. Finally, we are forecasting flat revenue in our display bridge and mature product segments for Q3, with slight improvements forecasted for fiscal Q4. Before turning the call to Elias, I want to reiterate our revenue outlook for Q3 and the remainder of fiscal 2023. Despite the push out of revenue from the second phase of the EFPGA IP contract we mentioned earlier, we expect its revenue contribution and the accelerated conversion of our diverse and growing pipeline to fully offset the shortfall in Q2 revenue. This emboldens our confidence that we are still on track to report greater than 30% annual revenue growth that we discussed earlier in the year. We are also still on track to turn the corner to profitability Starting in the third quarter of this year and based on our current forecast, we expect to report substantial full-year earnings for fiscal 2023. Let me now turn the call over to Elias for a review of the financial results.