QuickLogic Corporation

Ladies and gentlemen, good afternoon. At this time, I would like to welcome everyone to QuickLogic Corporation's first quarter fiscal 2024 earnings results conference call. As a reminder, today's call is being recorded for replay purposes through May 20th, 2024. I would now like to turn the conference over to Ms. Allison Ziegler of Daryl's 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 relating to revenue from new and mature products, statements pertaining to QuickLogic's future performance, design activity, and its ability to convert new design opportunities into production shipments. timing and market acceptance of its customer 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 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 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 page 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, Allison. Good afternoon, everyone, and thank you all for joining our first quarter 2024 conference call. Q1 revenue increased more than 45% year-over-year. This growth was driven by a nearly 60% increase in new product revenue, which was mostly from ESPGA IP contracts. With continued strong bookings, a record $179 million funnel, and some very significant EFPGA contract proposals pending, we remain confident that we'll deliver greater than 30% year-over-year revenue growth in 2024. Let's take a few minutes now to update the status for some of our major contracts and accomplishments. our strategic radiation-hardened FPGA government contract that has a total potential of $72 million. Last August, we announced the second tranche, which added Honeywell Aerospace as a foundry partner and increased the funding rate from tranche one levels to bring the Honeywell-based development up to speed quickly. Tranche two also funded our continued activity with Skywater Technologies. We are anticipating tranche three will be awarded later in Q2 And as we stated in our last conference call, we are modeling the funding rate for tranche three will likely decrease from tranche two and be more similar to tranche one. Due to this and the strategic shift in how we are now dividing revenue between engineering services and IP license, while we are projecting Q2 revenue will be up significantly year over year, we are currently forecasting a sequential decrease from Q1. We believe Q2 will mark the low point for the year. Since it is important, I'll take a moment to review how the change in revenue split impacts when we recognize IP contract revenue on our income statement. At the start of the year, we shifted the majority of the IP contract dollar values from engineering services, which are recognized over the course of the contract, to IP license, which is recognized at the completion of our deliverables. better aligns revenue with our deliverables and improves our ability to effectively negotiate and win future contracts. While this change will push quite a bit of revenue recognition into the second half of 2024, it has absolutely no impact on our cash flow. We continue to believe we will be cash flow positive and solidly profitable for full year 2024. Beyond building on the success of our large government contract, we are very well positioned to significantly expand our IP business across many new customers and market sectors, as well as the number of fabrication nodes supported by our IP in 2024. During our last conference call, I announced that we booked the first of two IP contracts that will be fabricated using the 12 nanometer processes and that the second contract was pending. We announced finalizing the second contract in a March press release. Both of these contracts will contribute to cash flow during the first half of 2024, but revenue will not be recognized on our income statements until completion of our deliverables in the second half of this year. The first contract is with a defense industrial-based customer and will be fabricated on Global Foundry's 12 nanometer process known as 12LP. I cannot go into any details beyond the fact this contract is not related to the large ongoing radiation hardened FPGA contract I just discussed. The second contract is with a large international company that I'm sure you would recognize. This design is for a new ultra-low power SOC that is targeting a variety of commercial and industrial IoT applications. This design will be fabricated by TSMC on its 12 nanometer process. Within the SOC, our eFPGA technology is used for AI acceleration, which is a necessary function in most AI applications. We believe this will prove to be a rapidly growing application that is often better served by eFPGA technology than a processor running the acceleration algorithms and software. In short, an eFPGA IP can be reprogrammed to adapt to changes in acceleration algorithms and perform acceleration more quickly and using much less power than a processor-based solution. In November 2022, I shared that we taped out a new device for a customer that incorporates our eFPGA IP. Due to strict confidentiality requirements, I can't share more details on the specific design beyond a brief update. In line with what I covered during our last conference call, the customer is continuing to work through certain aspects of the design. This work is progressing, and we anticipate resuming our efforts during the second half of 2024. This customer could represent tens of millions of dollars in potential device revenue starting in a couple of years. Last September, we announced the leading technology company chose our EFPGA IP for a design that will be fabricated using Global Foundry's 22FDX platform. Again, due to strict confidentiality requirements, I cannot go into more detail on the design. but I can share that we have delivered our IP to the customer and expect tape out to initiate this quarter. Last November, we announced the global semiconductor leader chose our EFPGA IP for a design that will be fabricated on UMC's 22 nanometer platform. We have completed the delivery of our IP and expect tape out to initiate this quarter. In total, we are on contract to deliver our IP on six different foundry process technology combinations, including two that will be fabricated using 12 nanometer technology. This is up 3x from a year ago with minimal growth in the associated R&D costs. This demonstrates the market demand for EFPGA IP is accelerating and that the automation from our proprietary Australis IP generator enables us to address this demand in a scalable way. We have several chiplet opportunities in our funnel, including deals with our partner, YourChip. As a matter of fact, we recently submitted two substantial proposals this year with a combined value of over $40 million, one in conjunction with your chip. As I mentioned in our last conference call, our lead smartphone customer worked through its excess inventory of ESS3 that limited our shipments during 2023, and we have resumed shipping to support productions. We hosted a meeting with this customer at our San Jose headquarters earlier in Q2. Based on the customer's outlook, we expect volume will increase in 2024 as our EOS S3 solution was selected for new designs that will ship well into 2025. Consistent with the outlook we shared last quarter, we are forecasting a modest increase in display bridge shipments this year and expect mature product revenue will be similar to what it was in 2023. A couple of weeks ago we announced the release of Aurora 2.6, our comprehensive EFPGA development tool suite. This release of Aurora includes a number of significant improvements that will expand our market opportunities and help us win new designs. In Aurora 2.6, we expanded operating system support to include multiple versions of Linux, including CentOS, Red Hat, and Ubuntu, and included support for Windows 10 and 11. Furthermore, Through the incorporation of new architectural improvements, Aurora 2.6 can also deliver up to a 15% improvement in speed. In some eFPGA designs, critical path timing can be even more important than raw speed. To address this need, Aurora 2.6 incorporates interactive path analysis and a new graphical user interface. For our customers, this means easier to use, better performance, shorter development cycles, and lower development costs. With our planned investments in R&D, we have a cadence of Australis and Aurora releases scheduled throughout this year that will provide further improvements to flow automation, increase IP core speed by up to 50%, and reduce die size for EFPGA hard IP implementations. Turning to Sentinel, I'm very excited about the progress made during the last three months. In short, there has been a notable shift in strategy that has accelerated near-term revenue and we believe will substantially accelerate end-user adoption. The first step was to sign a six-figure contract with a major MCU company, which puts Sunsimul on track to deliver the material 2024 revenue growth I forecasted last quarter. Sunsimul is discussing a similar agreement with other MCU companies. The second step will be revealed in more detail tomorrow morning. Leveraging the four years of experience and success monetizing an open-source business model at ClickLogic, Samsung Mobile announced its own open-source strategy in a press release issued before the market opens. The short story here is open-source provides customers the transparency and security they need to incorporate high-value IP in their designs. and in many cases also adopt proprietary processes and professional services. You have seen how this strategy has enabled QuickLogic to more fully leverage and monetize its proprietary IP and expand its reach into a variety of end markets. I believe we will see the same from Sensible, and with the market's ravenous appetite to adopt AI and ML, we anticipate a much faster ramp and a much broader market reach for Sensible. With that, let me now turn the call over to Elias for a review of the financial result, and I will rejoin for our closing remarks. Elias, please go ahead.