Q3 2020 QuickLogic Corp Earnings Call
Ladies and gentlemen, good afternoon.
At this time I'd like to welcome everyone to quit logic corporations third quarter fiscal year 2020 earnings results Conference call.
As a reminder, today's call is being recorded for replay purposes through November 11 2020.
I would now like to turn the conference over to Mr., Jim Fanucchi of Darrow Associates Mr. for Nokia. 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 Dr., Seuss <unk> Chief Financial Officer.
Following current social distancing practices management is doing 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 quicklogics 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 a projected production start dates it 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.
For the ability 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 disgusting Quicklogics. Most recent filed periodic reports with the SEC Quicklogic assumes no obligation to update any forward looking statements or information.
Which speak as of their respective dates of any new information or future events and 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 website that provides.
Current and historical non-GAAP data.
No Quicklogic uses its web site the company blog corporate Twitter account Facebook page and linked in 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.
Yeah that prepared remarks made on todays call will be posted at Quicklogic IR web page shortly after the conclusion of todays 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 third quarter fiscal 2020 financial results Conference call.
I want to kick off today's call by again thanking the quicklogic team for their continued resiliency as we work through the COVID-19 restrictions in.
In the face of both personal and business challenges, they're focused on innovation and serving our customers. Despite the barriers presented by this pandemic has been extraordinary.
As we continue to chart, our new course for the company the team is going above and beyond to ensure the future success of Quicklogic.
The third quarter marked another step in our ongoing transformation that started more than a year ago.
We have been evolving our focus from being primarily a product company, serving only large customers in the consumer markets to a platform company, serving a much broader set of markets and more diverse set of customers.
Do you think clear consumer I O T industrial and the military space.
I remain confident we will see this change deliver improved financial results in fiscal 2021.
Our third quarter revenue reflected the continued headwinds associated with the broad impact from the COVID-19 pandemic that we discussed in our last call.
However, a favorable product mix and continued decline in our operating expenses from the proactive changes taken earlier this year resulted in higher gross margin and much better than forecasted bottom line performance.
The good news is that we currently see Q3 as the revenue low point and expect sequential improvement with a better trajectory into 2021.
You will offer our full outlook later in the call.
I want to now shift the discussion to some of the initiatives, we announced in the last couple of months and provide additional context around their importance to our strategy.
You will remember that in June we announced the Quicklogic open Reconfigurable computing or Cork initiative.
This project marks a milestone for the industry.
With Quicklogic, becoming the first programmable logic company <unk> actively contribute to a fully open source S.P.G.H. will change.
Cork, not only significantly leverages, our IP and Opex investments to grow a high margin revenue stream.
Of equal importance is that it makes our technology more diversified and available to a larger customer base.
With the strong growth in open source initiatives such as risk five this is the ideal time to drive this strategy forward.
Since our announcement, we've received overwhelmingly positive feedback from potential customers, our co development partners, which include Google and Microsoft and.
And the technical press did have covered up in source initiatives for a very long time.
We are convinced we are offering our open source solution the right way in a way that will drive our business objectives.
Even more telling is the fact, we have shifts more than 450 of our quickstart their development kits to customers in just a few months.
The pace is accelerating and we remain on path to realize our goal of roughly 1000 deaths kits order by the end of Twentytwenty.
All of these development kits should be viewed as seating opportunities in the market with our technology that should drive Yos S. Three and some small revenue next year as they take those death kits and turned them into actual real products with real volume behind them.
While we have invested resources to develop our S.P.G. a design and verification software. The software platforms are simply tools that enable us to sell our proprietary patented IP that customers can use to embed into 86 and associates.
To take us a step further if we think about who traditionally we sold two it was the hardware engineering and let's say there are approximately 100000 that those types of hardware engineers and just the U.S., but understand our type of technology.
On the other hand.
There are a few million software engineers in the world with Google alone, probably having tens of thousands or.
What Google has helped US do and this collaboration is to understand what it takes to make hardware easier to use for the software engineer.
In doing so we're talking about an order of magnitude increase in the number of engineers, we can sell our solutions to some of which have never use this technology before.
By making our technology easier to use we get broader exposure and reduce our cost of sales.
Since our launch in June we've seen the community take on numerous developments on their own complementing our own R&D efforts by allowing solutions to develop organically filling multiple niches and evolving more quickly towards the best fit for particular classes of problems.
It's also meshes, well with a sensible AI and auto and Altisource and our U.S.P.G.I. technology, both of which have very high value for a wide range of I O T applications.
In August we joined the open hardware group furthering our commitment to open source.
The most recent development being undertaken by the open hardware group is a derivative of the risk five and Quicklogic U.S.P.G.A. based associates completed bike E G H in Zurich.
And while we can't claim we knew two years ago that the G.H. development would have such leverage it does put us in a great position moving forward to accelerate our silicon and U.S.P.G. a roadmap in a cost effective manner.
Fiscal 2020 is all about laying the groundwork for the Cork initiatives.
Starting next year, we expect Cork, we'll do you one of the primary catalyst to our path to profitability before year end.
Another linchpin to our open source initiative is the integration of sensible analytics tool kit with Googles open source machine learning framework called Tensorflow light for Microcontrollers.
Together they complement each other by offering a powerful neural network algorithm execution from Tensorflow light with the ease of use of the sensible Hey, I tool.
We are excited to enable a seamless fast and productive work flow for developers, creating and deploying edge AI sensor algorithms for Aiotv devices.
The openness flexibility and performance enabled by this effort is important and valued by our M.C. Your partners and Aiotv device customers. It.
It will be a key enabler for our SaaS revenue growth in the coming quarters.
In August we announced the sensible analytics tool kit now running on the sensor tile box I O T Chek from S.T. microelectronics. This.
This combination enables up to five times faster development of even the most complex AI based pattern recognition algorithms for time series sensors than what could be done using more traditional methods.
We're really excited about the growing relationship with SD micro.
Some small participated with a speaking spot at the recent S.T. developers conference two weeks ago, providing yet. Another example of the large scale opportunities possible through our partnership and membership and the S.T. Microelectronics partner program.
Now, let's move to our collaboration with the consortium of companies that include ARCC Sky water linear eightsix and others for the COVID-19 testing solution that I discussed last quarter.
Phase one of the product is part of a research study at a prominent U.S. based University we.
We expect the study to conclude within Q4 and go before and institutional review board for approval.
And while this is the first medical solution built using that sounds small AI software platform. We hope that there are several others to follow if.
If you are interested in this testing solution. Please go to arc Dot health for more information.
Where things are getting even more interesting is how our work with Tensorflow light is converging with our open source S.P.G. initiative.
We recently delivered several evaluation systems to a maker of home computing devices. If the program is successful the platform could be included in device is targeted for late Twentytwenty one shipments.
Further supporting our IP focused last week, we announced some exciting developments with Samsung foundry first.
First we announced that the third generation of our Arctic Pro embedded S.P.J. technology Arctic Crlxthree is now available on Samsung's 28 nanometer FD Soi process.
This achievement was the culmination of more than a year of development with Samsung.
Arctic Pro three was designed from the ground up on their 28 F.D.S. process delivers a significant boost in performance with ultra low standby current leakage.
Second with the IP development completed Quicklogic was accepted into the Samsung advanced foundry ecosystem as a member of their IP partner program.
As a result, we have started engagements immediately.
This is an exciting development that we believe will lead to future IP licenses and royalties.
I wanted to share this context on the key events from the last few months to help everyone understand their importance to quick logic as we transform our business.
Turning to the current environment and what we expect to see in the fourth quarter.
After a difficult first three quarters of 2020, several existing parts of our business are finally seeing some improvement.
Let's start with our smartphone business, our momentum is accelerating and the stock market is definitely a highlight for 2020.
We have locked up several phone wins during the second half of 2020, including our first Fiveg smartphone production win.
We currently expect the total number of funds using Quicklogics technology to reach at least 10 by year end up from three at the start of the year.
These new phone launches should lead to a much stronger smartphone revenue this quarter.
And the Hearables market yesterday, we formally submitted our developer kit for official Amazon certification, if all goes well and we expect it will we will achieve certification and watch these kits to the market before the end of the quarter.
In our U.S.P.G.I.P. business one of our early engagements has recently taped out their test chip.
Barring any geopolitical related risks, we could see a full E.S.P.G. IP license in the first half next year from this customer.
Within our voice activated products program as discussed on prior calls we realigned our efforts with one of the largest providers of microphone technology to leverage our previous developments and launched an always on voice activated remote control solution.
Are you assess three based low power platform will enable voice activated remote controls to operate with almost one year of battery life more than twice that of current remote controls in the market.
We are moving quickly to work with several Oems and expect incremental revenue starting in Q1 of next year.
In our mature segment the COVID-19 related issues remained a challenge, particularly for the civilian aerospace sector.
Q3 was certainly impacted as revenues declined again due to certain projects being delayed.
The positive news is that in Q4, we expect to see a temporary snap back in sales with mature revenue nearly doubling.
In particular, we expect military related sales to exceed even our typical seasonal strength in Q4.
On the other hand, the civilian aerospace market is expected to remain sluggish for the coming quarters until the consumer air travel market begins to rebound.
While forecasting beyond a couple of quarters is difficult with the continued uncertainty in several markets. We serve it is our current belief that mature sales and 2021, well at best be flat compared with 2020.
Before handing the call to Sue I want to reiterate that the pathway for better financial performance and 2021 is in place and our future is bright.
We are beginning to see accelerated traction around our open source initiatives and with some of the largest platform companies in the world.
When combined with the feedback or new product customers are providing related to improvements in their business as well as expected growth in our software related programs I remain confident we will deliver improved financial performance in the fourth quarter and into fiscal 2021.
I would now like to turn the call over to Sue for a discussion of our recent financial performance and full Q4 outlook Sue.
Thank you, Brian good afternoon, and thanks to everyone for joining us well.
Well the third quarter fiscal Tony 20.
Revenue was 1.8 million <unk> capex.
Sure, let that Romney up two point truly only I think though that second quarter 2020, and third quarter 2019.
Q3 revenue reflected that for all the impact that you know pretty all in aerospace market from nickel awful.
Would be our Q3 revenue.
Sales of new products were 639000.
As compared with.
820000 in Q2, and a 1 million in the third quarter of 2019.
Our mature product revenue was 1.1 million compared with 1.1 young quarter, and a 1.1 million off Q3 2019.
In the third quarter, we had a more customers.
Each accounted for 10% or greater up ourselves.
Non-GAAP gross margin in Q3 and moved it to 53.9% compared with 47.1% in the prior quarter and 48.9% in the same quarter of 2019.
The improvement in gross margin compared with the two other periods was mainly due to the restructuring and can you.
Oh control effort.
Non-GAAP operating expenses for Q3 were approximately 2.6 million representing an improvement from 3.2 million in Q2, and 4.5 million in the third quarter of last year.
The lower operating expenses in Q3 were primarily due to two factors.
One.
Update to estimated non recurring restructuring charges and asset write off.
And to greater than expected ongoing capitalization of SAP software development costs related to milestone achieved during the quarter.
Even when factoring out the non recurring adjustment.
Our operating expenses in Q3 were still about 1.5 million lower than the same period last year.
We believe operating expenses well remain in the low green yard range caught up for the bold future.
Within our Q3 operating expenses.
R&D and <unk>, she and they were both up approximately 1.3 million.
This compares with the R&D and that's yeah, they up 1.7 million and a 1.4 million in Q2 this year.
And 2.6 million and the one 9 million in Q3 last year.
The net total for other income expenses and taxes in Q3 was a charge of 19000.
Compared with 84000 in Q2, and then hit 9000 in the third quarter last year.
Non-GAAP net loss in Q3 improved to 1.7 million or a loss.
Okay per share.
That's compared with a net loss of 2.2 million or 26 cents per share in Q2, and a net loss of 3.5 million or 42 cents per share in the third quarter last year.
The per share calculation for both periods reflects that reverse stock split and what the success last December.
The total cash at the end of Q3 was 24.7 million.
Compared with 26.1 million at the end of last quarter.
Q3 cash by I think food.
461000, the net proceeds from the exercise of the over allotment that cold I mean July.
And the one point to me I'm wrong.
From the P.P. alone we received in Q2.
On the P.P.P., along we are in the process of up <unk>.
Cabinets probation and ship completed this process before year end.
Attached I said also.
[laughter] <unk> draw from revolving line of credit.
Now moving to our forecast appalled walk quarter of fiscal 2020, which well and on January 3rd 20 and 21.
Revenue guidance for Q4, it's 2.7 yard plus or minus 15%.
At the midpoint. This represents an approximately 50% increase from Q3.
We believe total revenue wont be comprised all roughly eight.
800000 up new product and 1.9 million mature product.
Based on the expected run their mix.
Non-GAAP gross margin in the fourth quarter, well be approximately 60% plus or minus 5%.
In Q4 or non-GAAP operating expenses will.
It would be approximately 3.1 million.
It's our minus 300000.
As I mentioned earlier, we expect this to be a normalized oh well the next few quarters.
At mid point out that Q4 range R&D should be 1.6 million and she had a 1.5.
After interest expense on the income impact it at the midpoint. We currently work has thought non-GAAP net loss as well.
Well HM two approximately 1.4 million or a net loss of 20.
Well fad per share based on roughly 11.1, we always shares outstanding.
Most of the difference between our GAAP and non-GAAP, where it's all it's all stock based compensation expenses.
We expect that stock based comp to being the range up 700000 for the next few quarters.
Finally in Q4, we expect the cash usage.
Fine from Q3 and being the range of.
1.3 to 1.8.
Cash usage of that decline further over the course of the 2021 wed expected the improvement to revenue and gross margin.
Well the strength in our balance sheet.
Leave we are well positioned to achieve our growth objectives.
With that let me now turn the call back over to Brian well his closing remarks.
Thank you Sue.
As we look back on what we have accomplished a transition quicklogic, particularly in the context of the COVID-19 pandemic I could not be prouder of what our team has achieved we have realigned the company not just in terms of having the right resources to execute on the open source initiative, but also significantly reducing our cost structure.
Making profitability before the end of 2021 much more attainable.
With what we have in place and the opportunities that are opening up for new business. It is clear we have made tremendous progress on the continued evolution of Quicklogic incur.
In closing I would like to thank again, our many stakeholders for their continued support during these extraordinary and challenging times.
That completes our prepared remarks, Hector I would now like to open the call for questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue. You May Press Star two if you would 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 star keys, one moment, please while we poll for questions.
Your first question comes from line of Suji de Silva with Roth. Please proceed with your question.
Hi, Brian Hi, Susan.
So let me first thing first first question Brian on the smartphones you said the 10 models by then the or are those all still single customer or have you now branched out and for the Fiveg phones is there any higher content opportunities.
[noise] Oh, we haven't just goes if it's one or more customers, but if it was another one we probably would announce it. So you could assume it's probably with the same guy and what was the question on Fiveg.
Hi, its probably get up to the as you go to slide two songs.
In the current model no, it's a more or less one of the current combinations or would you actually sell different variants that functionality to them already.
But it's not materially different from what we've already been selling to them.
Okay.
So do you have a right to the court a QR see ER product initiatives. He talked about the revenue model there the timing of contribution for you perhaps the percent of the revenue can be attributed to calendar 21, since you talked about being a big driver and getting to profitability there how big can it get 40 and 21.
Yeah, I think is a the impacts next year can't be understated actually so if we just think about the revenue contribution from now till the end of next year in this current quarter and in fact this whole second half. It's all about death gets I'm getting hopefully that thousand dollar thousand death kits out there should be thousands of dollars.
In terms of baskets, we're looking out for next year is some percentage of those deficits, you're going to turn into actual product designs with us three that go to volume I think for modeling somewhere in the few million dollar range for those transitioning over to real production wins and shipments next year.
That's on the device side on the IP licensing side, there were certain things related to the open source initiative that we have not enumerated in detail yet Dutch.
That should trigger IP licenses next year driven from the fact that we are supporting a fully open source told chain layering throughout next year, probably starting from the Q2 onwards timeframe and then the other thing that can start this year is a sensible. So sensible runs natively on quick feather the deficit that we talked about all no.
Source.
We've already started to shift f. kits with the bundle of some small this year that we're hoping to transition to the SAS licenses for a subscription and we anticipate that growing throughout next year as well not just a normal death kit sales, but we have some very specific initiatives planned that we haven't talked publicly about yet.
She's done really get a bit good pop in terms of awareness of the death kit and some symbolic ended the idea there is to start with the free version of sense them. All on the quick feather death kit and then once they get the value. It's a tool to use cases transitioning over to a a more expensive SAS version somewhere in the future to $20000 a quarter range.
Okay, and then Atlantic Ocean was or what the impact to next year and total from Cork right to help them profitable.
So without giving a specific number I'd say, it's several million dollars worse or we have a fairly good line of sight to.
Okay, and then just one last follow up on <unk> core.
The water depth, it's going to a thousand I'm just I understand and then of course, others that are internal to Google or they third party guys were building Google Android based devices and also geographically is it U.S. Europe centric or are you getting Asia penetration with these oh I get it at my girls himself.
Yeah, I'd say that for the most part the desk at sales are to North America. We do have our distribution network that is stocking and selling them in Asia and in Europe, but for the most part the uptake has been domestically here in the U.S. as far as end customers that it goes to.
Without saying specific names there are definitely lots of them in fact going into very large compute greenfield customer.
Spreading around there for different projects.
That will hopefully be a revenue driver for us for next year, but.
But not totally dependent on that we are one of the points I tried to make in the beginning is that this new strategy is really about diversifying wherever you ticket products in terms of marketing customers and I think this is a good example of a fitting that it's in fact getting into many different higher ti.
Customers industrial customers and consumer customers.
Okay. That's helpful color. Thanks, right. That's it thanks Rudy thank.
Thank you see.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad.
As a reminder, if you would like to ask a question. Please press star one on your telephone keypad one moment. Please while we poll for more questions.
Your next question comes from line of Martin Yang with Oppenheimer. Please proceed with your question.
Hi, Brian Hi, Sue good afternoon.
My first question is now it's.
And there are reports from foundry capacity constraints are going to be.
Semi supply chain.
So are you affected by the capacity constraints and in the third quarter and do you foresee yourself getting.
Seemed to constraints.
In the next six months.
That's a good question. So the the only capacity constraints, we really saw on the supply chain side was earlier in the year when covered for sit in two places we're getting shut down when we got through that and I think Fortunately, we do try to have a buffer stock both in terms of wafers and packaged goods and were.
We're using I know.
I don't foresee the need to.
To do anything different in that area and we are looking with a matching our lead times, we set with our customers and to lead times from the from the shops and the assembly houses. So I don't foresee an issue and I think part of that is because we have really good relationships with the supply chain. Good part is that we were pretty carefully manage to make sure that we do have a wafer inventory on hand.
Where we have had to start new wafers.
We haven't had any issues so perhaps the ones that are constrained or ones are on process nodes that we're not on.
Got it and so all of them that can you talk maybe remind us or the typical lead time for our your mature and new products.
[noise] [noise] excuse me so.
The lead time that we give to customers excuse me [noise].
Is that typically in the eight week range.
Sometimes if we have a forecast from customers that go out further we decide to do a buffer stock we can take that and to a lesser number [noise] excuse me.
Typically it's about eight weeks.
Got it.
Last question for me, so looking at or what's your guidance or can you maybe walk us through the bigger drivers that will help us to reach the higher end.
Or things that could you know push us towards lower end of the range.
Sure. So for context at this point in time, we have more shipped and booked orders for this quarter than we did all of last quarter. So that's just the frame. So its view this through okay on top of that now how do we get to the guidance so mature as a big driver this quarter, obviously with Mil Aero.
They typically have larger orders and we see for the most part a those are laying a nicely.
We do see the Yos that's three.
For the smart phone as I mentioned earlier, we're seeing a shipping into more smartphones in this quarter and so that's the driver for that so we need to keep that going into this quarter.
And then also this quarter, we start to see a little bit higher pop in terms of the sensible SaaS software as well as revenue associated with the I.P.U.S.P.G.A. initiatives coming into play or.
Not quite to the point, where we'd have to start breaking up separately, but enough that it is meaningfully contributing to that midpoint.
Outside of those main drivers, there's just the ongoing business that we have but smaller levels, but I think I I captured the big ones there for you.
Got it thank you so much.
You're welcome.
Your next question comes from the line of Richard Shannon with Craig Hallum. Please proceed with your question.
[noise], Hi, Brian and Sue Thanks for taking.
Taking my questions as well.
Maybe a couple of follow ups on some of the prior questions here, maybe let's delve into via the phone customer here in the new wins here any any sense Oh.
Aggregate volumes from these wins versus the ones you've been in and how does this help you think about a you know like forecast out in future do you see this going more than a couple of quarters or because it's going to fill up most of next year.
Oh, we first of all I'll answer your last one first we see this going well through next year, we're getting visibility now into their phone roadmap for next year.
And the phone models that we would intercept with our devices. So in.
I'm feeling really good about next year being larger in terms of revenue than this year was with that same customer for us.
Especially as the attach rate starts to go up.
As far as the.
Individual fund volumes I think this customer is looking at.
You know both how can they do fairly good volume phones for the Japanese market and then how can they also address niches as well. So that then more nichey funds are going to be like 100000 units probably each the bigger volume ones are closer to a million.
So in aggregate how do you.
Wait that averaged probably its several hundred thousand units a phone I would guess in that area.
If you average everything out.
Okay that is helpful.
Let's see here in.
In the fourth quarter, you looking for a big step a mature products here and it sounds like you're calling up Mil Aero how do we think about that revenue stream as you go past this quarter, how sustainable is it obviously mil Aero I, just see with Quicklogic in other companies can be lumpy. So how do we think about a stability of revenue for this level.
So I think we're no different than other companies in the sense that there are there is lumpiness in the orders.
One quarter its here in the next quarter, it's not Fortunately, we have probably around five or six different military programs that were in that are pretty sizable and so they're not all lumpy in the same quarter, which is good. So thats why were saying earlier I think for next year I'm 2021, the mature business, which Miller as part of.
Oh, it was probably about flat to this year. If you look at it from an annual point of view there probably is a little lumpiness like in Q3 of next year Q3 is typically a soft quarter on the mature side because some of our Miller of businesses in Europe, it take longer vacations, they didn't buy as much product in the quarter, but outside of that it's it's fairly steady this quarter is a little bit of an anomaly because.
As a last quarter was a little lighter than we thought.
And there's a little bit extra purchasing in this this fiscal year because of a very specific military program, they're trying to stock up on.
But outside of that I would say, it's it's fairly normal for us.
Okay. That's helpful perspective, Thanks, Brian.
One of the earlier questions regarding core you said you had several million dollars worth of business that you have good line of sight on can you help us understand what you mean by good line of sight.
You you you know you have a good understanding of the product development and injured introduction cycles and in other things. It helps you make that comment can you give some more color there. Please.
Yeah without.
Giving away too much.
The line is that I was referring to is we're in the process of negotiating different contracts that show that there's that value there to be had both in terms of the IPH you suffer side as well as the device side. So we're going through that but that's we're engaged deeply with those people and were at the contract level and I.
That's why I say I said that I see line of sight.
Okay.
That's fair enough maybe one last question for me, Brian on on sensible said, you're seeing a higher pop from from sent them. All in this quarter again to does that sustain and maybe if you could help characterize kind of the underlying level of Hsas licenses. You had then and your thoughts on how how you grow that how fast they can grow.
Yeah, I think in our Investor deck, we talk about dozens of users that's continuing to grow we.
We have some initiatives that we actually are as you can to supercharge that grows pretty pretty soon here that we're launching with partners, one of which being SD micro.
A couple of other ones that we haven't talked about yet that I think are going to give access to a really broad set of users in a very short period of time. So we're hopeful that those will transition first into the lower cost here.
Which is only a few hundred dollars a quarter, but.
But that is a fairly limited functionality version of the tool as they get accustomed to it we plan to up sell them into the the higher capability version of this house. So the ones that are on the south already they're continuing to use it.
We're in the midst of negotiating a few larger deals right now for this quarter.
Spanning use cases, like a consumer wearables, where they're looking at creating different types of gestures or contextual classifiers.
Two I have a t. on more of a predictive maintenance type application.
So I think that those are going to continue well into next year and I am hopeful that we're actually going to start or increasing the slope of the the on wrapping to the hired higher cost years because of these initiatives are partners and I also can't understate. The importance that we have now where we have the integrated work flow.
With Googles Tensorflow light.
Googles Tensorflow light is very well used in the data science community tool for creating your own that's in the fact that we can now plug into that flow I think gives us access to a host of people that we didn't have access to before from a customer point of view and.
And so we're going to be benefiting from that shortly I just in terms of on boarding people to this EPS. So.
A lot of a lot of ground work that was laid actually in Q3 for sensible that I think is going to bear some fruit starting in this quarter, but really accelerating from from Q1 as we get these initiatives out more broadly.
I get.
That's helpful. Just one last question for me probably pursue here in the breakeven last quarter I think you called up breakeven roughly five to 6 million per quarter, an amendment or anything would tell me different but just want to confirm with you that you still view that as an appropriate that breakeven level.
Yeah, Hi, Richard Thanks for the question breakeven point, that's lowered <unk> mid <unk> neeleman.
Revenue from the core EPS, excluding so.
It is a can be even lower then finally, all in a runny can be even more Chile 4.5 million or if we have to our gross margin increased to mid sixtys level with some more of the IP license revenue and the SaaS revenue.
I mean, I'm encouraged by our high margin.
With our Opex at a level close to 3 million per quarter easily could they even achieve about breakeven at a 4.5.
Yep.
Okay. All right that is all for me guys. Thank you very much.
Great. Thanks, Richard Thank you.
Your next question.
Question comes from line of Rick Neaton with Rivershore. Please proceed with your question.
Thanks, Hi, Brian in high School.
Hi.
With your Samsung.
Oh collaboration.
How are the costs paid in this you would once announced an.
The U.S.P.G. a license.
With another foundry SMIC and they paid you some p. so I'm wondering how.
The cost of this.
This collaboration was covered did you covered did they covered.
The joint.
We covered it Rick.
Which is all part of the Opex on that we've been reporting.
For the better part of the year.
That's on the Silicon side, the other key element of Arotech PJ initiative, yet PJ court all of that is the open source software tools and I want to emphasize this point here for everybody.
Yes, moving into the open source software domain, we are leveraging a lot of the R&D that we have because we're using a lot of the product of other folks R&D to create these open source software tools are simply adopting them and then including our proprietary mix into that so that they can target our tools so because.
We we did that we were actually able to do this whole development as a much lower opex and had we had to do everything from a proprietary point of yourself, but sure I answered. Your question is we did the silicon porting costs by Ourself, we did not.
Do that with Samsung like they didn't show the cost if that's the question.
Right and any licenses that you would sell off of this collaboration would that.
Be direct with their customers.
Yes, it would be directly with the customers. So basically we had this big launch last week at their developer conference and so we got in touch with certain folks their inbound just by attending we've had other folks that have been interested since we did the press release, we would do direct license deals with them with those customers.
The wafers that run in Samsung Foundry, and then we would get royalties directly from the customers as well.
Which is the typical operating model of these foundries, if you're not a if you're not a standard sell IP provider, which is somebody like a cadence or a synopsis.
Typically this is the type of arrangement you have with IP providers and foundries.
Okay.
With a plus or minus 15% on your Q4 guidance.
That works out to around a $400000.
Opportunity there.
Where's that opportunity be located.
To get to get to a 3.1.
To get to 3.1.
Well like I said earlier when the one of the other guys was asking about the the Cork initiatives into next year. There's other things that we're talking about that could hit in this quarter as well for that.
That's not baked into the the midpoint, but.
That could certainly get us to the high end just needs if it's come in.
During your last conference call you spoke about the possibility of an E.S.P.G. or an Arctic pro three license in the fourth quarter of this year is that what you were talking about as saw something in Q1 or Q2 of next year.
Yeah. The one the one large when I'm thinking about it would be in the first half of next year at some point.
The hero Bowl Kip, you're submitting to Oh, yes for approval.
For use through use of VBS services.
Is that being submitted and quicklogics name or under one of your customers.
Hi, it's a death kits. So it's under our name because ultimately we would be the one that's that is associated with it on the Amazon Web page and not just for clarity. It has been submitted past tense. It was submitted yesterday and so their labs insurance and for certification testing.
Okay.
In the past you had been talking about a customer submitting a designer kit Dove kids. So this is a change in that did something else be submitted using the S. Three.
It's not a change just as part of the story Ric. So we do have okay customer that has a waiting for that to finish before they can make sure that that suffer they use is good enough for them to put their own product and.
It's the difference between an O.G.M.
Yes kit and they OEM like a semiconductor companies does kid and in the past I talked about both and that's still the plan, but will be the first to go through the the gone like if the testing.
You said you had good line of sight into some of your customers even for next year.
How's that line of sight to look for the first half of next year.
I will better than the second half, obviously, because it's it's nearer term right.
Okay. So most of the opportunities you're talking about converting our today first half opportunities.
Yes, and that is my focus actually first half I want to start the year strong.
Okay.
Do you have any bookings for Ah right now for first quarter shipments.
We do have bookings already yes, both from mature and for a smartphone customer.
Yeah and are they above what your third quarter bookings were.
Don't think I'm going to go that far in the call, Rick, but but it was good bookings.
Okay. One last question how is your sense a mall conversion rate are going that present. It earlier in the year you spoke about a number of opportunities.
Where licenses were shipped to a smaller trial fees and you were hopeful of converting a number of those into full license a full service license arrangements.
Is that what you're talking about in Q4.
Some of those are converting the existing funnel over to the higher tier SAS [laughter]. Some of those are pretty material in nature to the enterprise SAS level.
I am not satisfied yet with our conversion rate and I think that we can and will do better and we've gone through a pretty deep analysis on.
What we can do actually just to start improving data. We're in the process of implementing that now in fact, so some of the the new marketing initiatives Youre undoubtedly see come out from US later this quarter.
We'll be towards contributing to that.
So I was going okay, but I think we can and will do better.
Okay. Thanks, a lot Brian appreciate it.
Thank you my parents always.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr., Brian feed for closing remarks.
[noise], yeah, so I'd like to thank everybody for joining us on the call today.
Our next call I believe is scheduled for February and will be.
Putting releases out on the exact time you can take you for support and talk to you later, thank you bye bye.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
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