Q3 2021 QuickLogic Corp Earnings Call

Today's call is being recorded for replay purposes through November 24th 2021, I would now like to turn the call over to Mr. Jim Fanucchi of Darrow Associates. Mr. Fanucchi. Please go ahead.

Yeah.

Thank you operator, and thanks to all of you for joining us our speakers today are Brian Faith, President and Chief Executive Officer, and Anthony Conchos Interim Chief Accounting Officer as a reminder, some of the comments quick logic 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 quick logics 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 in production start dates that could impact the timing of shipments the company's future evaluation system.

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.

And those differences please refer to the risk factors discussed in quick logics. Most recent filed periodic reports with the SEC quick logic 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 in today's call we will be reporting now.

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 click logic 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 quick logic may use these channels to comply with its disclosure obligations under regulation FD a cop.

We have that prepared remarks made on today's call will be posted at quick logics IR web page. 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 third quarter fiscal 2021 financial results Conference call.

Our Q3 results were among the best quick logic has ever reported.

Revenue of $3 9 million was the highest we have generated in six years.

And due to a higher mix of software and IP related sales non-GAAP gross margin was 73% an all time record for quick logic.

We also made significant progress on our bottom line with a non-GAAP net loss under 400000, the lowest since Q4 of 2010.

And when we include our outlook for Q4, with Anthony which Anthony will provide a bit later our revenue for the second half of fiscal 2021 alone will be almost the same as we reported for all of fiscal 2020.

These results further validate that our transformation to a platform company.

Just on enabling more edge artificial intelligence is well underway.

We are doing this by marrying our decades of expertise in programmable logic with the power breadth and continually expanding open source software and hardware ecosystem.

I am very proud of the quick logic and sensible teams for their amazing accomplishments and thank them for their dedication and efforts to get us to where we are today.

Since we embarked on this new path forward nearly two years ago, our commitment to leveraging open sources fueling what I believe to be a once in a multi decade opportunity to disrupt and mature FPGA market.

Yeah.

Quick logic has quickly established itself as one of the leaders in this fast moving market.

We're now at the tipping point for scaling this new approach more broadly, which is coinciding with the accelerating market demand for embedded FPGA IP cores and <unk>.

F. P. J devices that are supported by open source tools.

With our powerful combination of leading edge products growing customer and industry relationships and an increasing network of distribution partners I am even more confident that we are beginning of a long term trajectory.

We'll deliver higher revenue and earnings which should ultimately lead to improved shareholder value.

Now I want to move into some of the items that drove our third quarter results and developments that will serve as the building blocks for our future success.

First.

Let's start with a significant development that strengthened our financial position at the end of September two of our longtime shareholders approached me about making a strategic investment in the company.

<unk> recognized the tremendous opportunities ahead.

Transaction was done at no market discount raising a little over $1 million.

The funding should ensure we have the capital to execute on our near term growth objectives.

We also announced our largest E S. P G a contract ever a $2 million design win.

Part of this revenue was captured in Q3 with the remainder expected in Q4.

This was an intense and lengthy process.

Customer performed an extensive evaluation of several programmable logic companies.

Ultimately they chose quick logic because of our proven track record in delivering high quality programmable logic devices E. F. P. G. A I T and FPGA user tools combined with our strategic Cork open source initiatives.

This is the first of what we believe will be several seven digit opportunities.

Which makes us excited about the prospects for 2022 and beyond.

Also in September we formally announced the australis E. S. P. G. A I P generator.

Which is the opening to what I believe is a new era of mass FPGA and embedded FPGA customization.

The australis tool is going to be a game changer.

Yes, Ralph this tool generates FPGA IP in a highly automated way, including the implementation of customer specific variance.

The tool is built with scale in mind with the ability to generate an E. S. P. G. A IP core for a new foundry and process node within a few months.

And derivatives to currently supported foundry and process node combinations within weeks or even days.

To be clear.

We will use the australis tool to address multiple challenges and opportunities.

Developers will be able to create FPGA implementations.

For intellectual property protection.

Loading and hardware acceleration of artificial intelligence or machine learning processes or simply create a range of product variance for fragmented markets.

Being able to do all of this quickly and with the flexibility to easily target. The same node as the S. O C means that these significant benefits come at a very low cost.

We are already seeing the australis tool pay dividends.

A few weeks ago, we announced our first customer success story in which we use the australis tool to generate a customized E. S. P. G. A I P for Umc's 22 nanometer process more.

More importantly, this was a new foundry and process combination for us and we were able to go from contract to IP delivery within only four months substantially faster and with much less development cost and with our previous development methodology.

The customers.

The motivations reflect many of the reasons, we believe that using embedded FPGA technology for <unk> applications as a smart technical and business decision.

Being able to execute quickly and with the flexibility to easily target. The same node is the SFC is using means that these significant benefits come with a very low cost in a very fast time to IP delivery.

We are seeing an increase in rfps and RF skus for our E. F. P. G. A I T and this is exactly what the australis tool enables leading to better market penetration and financial results for us in the coming years.

Those are some of the key announcements we made since our last call.

Now I want to offer some comments about what we are seeing near term for our E. F. P. G a business.

We are currently working on several initiatives that have the potential to generate tens of millions of dollars in revenue over the next three years.

Given the sensitivity of these programs and confidentiality restrictions we are bound to we can't discuss company's Oregon granularity on applications. However from a 50000 foot level, let me cover the following.

We recently signed a large.

Very near seven figures E. S. P. G a related contract for a process technology, we have not targeted before.

We will be using the australis tool to go from customer contract the IP delivery in less than two months a record for us.

We believe this will likely lead to a follow on multi million dollar contract in 2022.

With additional opportunities in future years.

These types of opportunities would simply not have been possible a couple of years ago.

Now cigar FPGA initiatives growing presence with the open source FPGA Foundation, and an expanding toolbox of key products, we have the opportunity to bid on significant proposals and execute for revenue.

Okay.

Outside of our FPGA business, we announced the strategic partnership with Rubidium limited a leader in voice recognition and always on voice trigger software.

We are providing rubidium a complete voice recognition solution based on our very low power E. S. S. Three voice and sensor platform, which they will combined with their own voice user interface software.

This is a very attractive for Iot edge applications, particularly those that are battery powered or lack of cloud connectivity.

Our sensible business continues to gain traction recently.

Recently, we announced that sensible has teamed with on semi one of the semiconductor industry Giants, enabling the development and integration of AI based algorithms into their manufacturing robotics or predictive maintenance applications without needing to have expertise in data science or AI.

The on semi R. S. L 10 sensor development kit combined with a sensible tools has produced a compact but sophisticated platform. That's perfectly suited for driving next generation industry for pointed out solutions. This is a major win for sensible.

Yes.

We once again expanded our distribution channels, signing a worldwide distribution agreement with Digi key electronics.

Our E S S III low power Microcontrollers and polar pro three low power FPGA is all supported by 100% open source software as well as our Dev kits are now available through that channel.

This agreement is complementary to the agreement <unk> signed with Digi key earlier this year.

Our partnership with <unk> is an important milestone in our global growth strategy and increasing our presence worldwide.

Ah.

Our smartphone related sales came down a little as expected in the third quarter. After a very strong Q2, and we expect them to come down a little further in Q4 as our smartphone customer prepares for their next smartphone launches despite.

Despite that sequential drop for the year, we are proud to say that our smartphone revenue will be approximately 60% higher than the prior year.

We ended the quarter and 10 phones, including multiple five G models, a new smartphone was just launched yesterday that includes our E. S. S. Three and we believe our lead smartphone customer will continue to use E. S. S. Three through 2022 and into at least 2023 on multiple models.

<unk>.

With respect to the supply chain issues that have been discussed by many companies. Our lead times have increased for the final Assembly and test production.

What used to be a six to eight week turnaround is now stretching to six months or more.

We are countering some of the delays by leveraging our inventories of substrates and finished materials.

This issue is not going away anytime soon so we may need to build additional inventory ahead of customer shipments to minimize risk.

Finally in our mature product segment revenue declined as expected ongoing supply chain issues impacting our mature customers, particularly in the civilian aerospace market. In addition to the lingering effects of Covid related business disruptions continue to hold back revenue in this segment.

Without good clarity it is difficult for us to see how mature revenue will be much different than the first half of fiscal 2022, then it will be in the second half of fiscal 2021.

I know I've covered a lot of topics that will be instrumental in our ongoing business and financial improvement.

<unk> put 2021 is proving to be the most pivotal time and quick logics long history. It.

It has not been easy and there may still be bumps in the road in the future.

Over the financial results, we are reporting today and the outlook, we have for both near and long term are the proof points validating that our transition is succeeding.

With that I will turn the call over to Anthony.

Thank you, Brian and good afternoon to everyone joining us on today's call.

As Brian mentioned, our revenue was the highest since the third quarter of fiscal 2015 and represents the successful progress quick logic is making on its business and product transformation.

For the third quarter of fiscal 2021 revenue was $3 9 million. This compares with revenue of approximately $2 9 million in the second quarter of 2020, one and $1 8 million in the third quarter of 2020.

This reflects an increase of $2 1 million or approximately 117% compared with the same quarter last year.

Within Q3 revenue sales of new products were approximately $2 8 million the highest since Q3 2015. This compares with about $1 3 million last quarter and 639000 in the third quarter of 2020.

Our mature product revenue was approximately $1 1 million compared with $1 6 million last quarter and $1 1 million in the third quarter of last year.

In Q3, we had three customers, who each accounted for 10% or more of our revenue.

Non-GAAP gross margin in Q3 was 72, 8%, which is an all time record for quick logic.

Product mix, which included higher E. S. P. G E and other services revenue were the main reasons for the improvements.

Q3 gross margin compares with 51, 5% in the prior quarter and 53, 9% in the same quarter of 2020.

I should remind everyone that second quarter gross margin was primarily impacted by a write down of raw materials of approximately 156000.

This caused a 5% reduction in gross margin. Nonetheless, you can see that gross margin was up substantially from the prior quarter.

Non-GAAP operating expenses for Q3 were approximately $3 2 million. This compares with $3 3 million in Q2, and $2 6 million in the third quarter of last year.

Within our Q3 operating expenses R&D was approximately $1 5 million and SG&A was $1 7 million.

This compares with R&D and SG&A of one six.

And $1 7 million respectively in Q2.

And $1 3 million for both R&D and SG&A in the third quarter of last year.

Non-GAAP net loss was <unk> 4 million or a loss of three cents per share based on 11 6 million shares.

This compares with a net loss of $1 9 million or <unk> 16 per share last quarter and a net loss of $1 7 million or <unk> 15 per share in the third quarter last year.

The total cash at the end of Q3 was $19 6 million this compared with $19 1 million at the end of last quarter.

Included in the total cash was net a net of approximately $1 million received from the direct placement.

The cash balance also includes the $15 million draw from the revolving line of credit.

Now moving to our guidance for the fourth quarter of fiscal 2021, which will end on January 2nd funny money too.

The revenue guidance for Q4 of $3 9 million plus or minus 15%. We believe total revenue in Q4 will be comprised of approximately $3 million for new products, which would be the highest since Q2 of 2015.

Mature product revenue is forecasted to be approximately 900000.

This midpoint of guidance combined with the results from the first three quarters would translate into annual revenue growing 50% above fiscal 2021 and.

Consistent with our previous estimates.

Based on the expected revenue mix non-GAAP gross margin for the quarter would be approximately 64% plus or minus 5%.

At the midpoint. This will result in annual non-GAAP gross margin of 62% consistent with what we have discussed throughout the year compares for comparison purposes non-GAAP gross margin in fiscal 2020 was approximately 51%. Additionally.

Additionally, the expected decrease in gross margin in Q4 versus Q3 is primarily related to the reclassification of nonrecurring engineering expenses to cost of sales in connection with our new E. P. G eight contracts.

Our non-GAAP operating expenses will be approximately $3 3 million plus or minus 300000 at the midpoint of the range. We expect R&D expenses to be approximately $1 6 million and SG&A expenses to be approximately $1 7 million.

As Brian mentioned earlier with the pipeline of business, we see for 'twenty 'twenty. Two we would expect quarterly Opex will tick up between 200000 to 300000 from Q4 levels in order to support the anticipated growth.

Just a reminder, that the first quarter of each fiscal year is generally higher spend quarter due to the normal beginning of the year expenses.

Yeah.

After interest expense other income and taxes, we currently forecast our non-GAAP net loss will be approximately 900000 or net loss of eight cents per share based on roughly 11 8 million shares outstanding.

Most of the difference between our GAAP and non-GAAP results is our stock based compensation expense.

In Q4, we expect that our stock based compensation will be similar to Q3 there.

There will be movement in our stock based compensation 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.

Or the balance sheet in Q4, we expect cash usage to be consistent with Q3 in the range of 500 to 700000.

With that let me turn the call back over to Brian for his closing remarks.

Thank you Anthony.

Before sharing my closing remarks, I would like to offer a warm welcome to radically Krishnan to our board of directors as we announced this morning Radhika is currently serving as the Chief product Officer, and General manager at Hitachi Ventura, where she is responsible for numerous functions across all product lines. This includes the industry leading ramada.

SaaS portfolio targeting data management analytics, AI ml and industrial Iot market segments.

<unk> brings a strong background in software and hardware and I believe she will have an immediate impact on our AI ml growth strategy for our sensible AI software and E. F. P. G a IP products.

In closing.

I have been part of the quick logic team for more than two decades.

No other time have I or many of our long term team members been this excited about the future prospects for the company customer interest in our new technologies is accelerating distribution partnerships are expanding our reach and our financial position is as strong as we've seen in many years.

Our sales funnel is strong and growing and we are exiting this year with more signed IP related deals than ever before.

<unk> has expanded its partnership ecosystem to support nearly all of the top microcontroller companies. Our go to market strategy has been and will continue to be focused on products that can generate revenue faster with higher gross margin and with a high return on investment.

With this being the final earnings call. This calendar year I wanted to offer a little more insight into our current thoughts for fiscal 2022.

Our pipeline of what I would call winnable opportunities is accelerating.

And we continue to balance this knowing that not all of these opportunities will pan out.

That said I can see a pathway for annual revenue in 2022 to grow at the same percentage if not more than the growth we foresee in fiscal 2021 over fiscal 2020.

At the same time with an expected higher mix of software and IP related sales next year, our gross margin could climb into the mid to high 60% range.

While operating expenses will grow modestly to support the new customer design wins, we should be on track to reach profitability in the first half of 2022.

It has been several years since we have been able to deliver such positive news and a bright outlook.

I want to thank our longtime investors customers suppliers and most of all the quick logic team for their continued support and trust.

This is a new era for quick logic, and our future could not be brighter.

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'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'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 star keys, one moment, please while we poll for questions.

Yeah.

Our first question is from <unk> Desilva with Roth Capital. Please proceed with your question Hi.

Brian Hey, Anthony Yeah, congratulations on the progress here.

So yeah. So the gross margin guide down because I'm going.

You're going to move <unk> into Cogs does that relate to that.

It sounds like you had a deal where are the Australia. This is going to allow you to hit a new node you haven't had before in the Rev. Rec causes that to be delayed until that's available is that all part and parcel at the same story.

Okay.

The operating expenses normally that would be in R&D that we're moving up the Cogs for the brand new one that I just talked about Theres. Some things that we've got to move into that specific to that deal for this quarter. So thats why youre seeing some of that move up there and the lower gross margin.

Okay.

So for the deal where you're trying to get a node ready for a customer for your F. P. J is the Rev. Rec such that you wait till that's all available and then that.

That revenue as opposed to as opposed to when you have now initiated the work for that customer.

These are typically milestone base license agreement Fuji. So typically they're recognized believe from a revenue point of view when we deliver all the obligations for that.

That could be a straight license for an IP that we already have or if there's some work involved needed to prepare that for delivery then we have to.

To match those expenses with the revenue from the IP license. So that's why you see that coming up periodically in Q4 for this.

So milestone basis got it and then I'm looking.

Looking at the F. P. J a pipeline I guess you know just to try to you know if you can give there.

The people on the call on the investors confidence that the $2 million customer you had wasn't kind of a one off but that there are multiple of those coming up how would you best at.

At this juncture give us the confidence that there are more of these on the way because clearly a lot of effort was put in to get that first $10 million customer over the finish line. So.

Just be helpful to understand how you have confidence more of those are coming versus the next one is taking as long or longer term to bring in.

Well the short answer to that is that I mentioned for Q4, we have a near seven digit new IP license already that we're going to close and deliver within this quarter. So that's already a follow on from that large $2 million one that we announced just a couple of months ago.

And then also in the prepared remarks, I mentioned that we had I think I use the world. Several other seven digit opportunities that we're chasing right now that we're fully engaged with so the the rate of increase of these rfps and are accused is increasing for those especially for those large ones and I again I think the fact that we were able to go from announcing that.

$2 million, one just a couple of months ago to on this call announcing one that's darn near seven figures itself that we can actually close within the quarter and deliver in the quarter. I think is tremendous and I think that that should give investors not just comfort, but excitement about how many opportunities we're dealing with and that we can close for 2020 two.

Yeah.

Excellent I appreciate that clarification, Brian and then as I look at the competitive landscape and how you've won some of these FPGA deals among the other things you've talked about the tools and all of that is is it quick heritage and FPGA, giving it a more robust roadmap that might be exciting these customers along with the other elements I'm curious if that's a factor.

Yes, there is actually I think two questions embedded in that <unk>. The first one is that the ability for me to get in front of.

Management across the table and let them know with data that we've been shipping devices for 30 years every time, they get into an airplane the flight control and avionics are likely powered by our devices.

That gives them a lot of comfort that we know what we're doing in terms of quality reliability manufacture ability at scale and we're bringing that to the party from an IP point of view that none of the VC backed.

<unk> can talk about with respect to delivering IP. The fact that I can talk about companies that have licensed our technology and put it into radiation tolerant devices and that those are floating around in space.

Also it gives them comfort that we know we're doing.

As far as quality reliability manufacturer. Please scale, so theres, an incredible amount of credibility that we have through that heritage.

But we bring to these types of deals now the second question was.

The fact that we're device companies that went to other conversations and it's interesting because you know.

There's this whole topic around you know and I think the supply chain really has shown a bright light on this.

People are having a hard time getting parts, they're having a hard time shipping their own products, because they can't get parts and theyre reevaluating their own supply chain and do they take more control of their own supply chain by perhaps doing their own devices.

And so that's bringing a whole new basket of opportunities for the FPGA side, because they may think about doing their device. They like the fact that we actually have an operations team in place and we have taped out so many devices and we sell them. When we have supply chain relationships. So we can actually offer services on the device side of their business and serve them with devices or IP and we're somewhat.

Unique in that that capability and then the last thing I'll say is that there's a lot of talk in the market about chip Hudson.

Has the time finally come that people are going to start using checklists and heterogeneous packaging technology to solve some of these issues in.

Personally I think the answer is yes to that and I think again the supply chain issues are shining a light of this may be the time for that really to take hold and perhaps we can be participating in that too because we have the ability to tape out devices work the supply chain all the way through package test and ship.

Chip with the people as well so I think there's this there's the opportunities are vast.

But we definitely come from the point of credibility with these customers, we're not a startup overnight right. We've been in this business for a long time.

Okay. One last question, then I'll jump back in the queue and I know you're being cautious about speaking about these.

FPGA customers, the licensing customers, but I'm trying to get any flavor or color on this.

What end markets maybe are the most interested you know if that is the way to think about this in terms of your wins that are driving some of this interest or if you want to answer it differently. Maybe you know you have the Google open source community of the DARPA partnership and all that which of those maybe are being the most productive near term and then getting you leads that are closing.

Yeah.

I think in the near term.

And if you look at our heritage business here. So today, we sell to five of the top five eight of the top 10 do you have any problems already and you can see that we got into the darker toolbox in the beginning of the year. So.

So I think that segment. It uses a lot of F. P. J, we have a really good reputation in that space I could imagine that would be one of the early markets that we start to see a lot of the success here.

That being said that $2 million of contract is not in that space. So we are seeing diversity in space that 2 million or a contract is more for what I would classify as the general industrial instrumentation and test space.

That's also out there. So we have good diversity right now already with our IP contracts by the way. The first one the first contract when it was on the 22 UMC that was in our consumer audio so that's even get another market. So with our first three deals at three different markets and I think that speaks to the breadth of their phone.

Excellent color, Brian Congratulations again guys. Thanks, Thanks for your thanks.

As a reminder, 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'd like to remove your question from the queue.

Our next question is from Rick <unk> with River Shore investment Research. Please proceed with your question.

Thank you thank you Brian and congratulations.

On the quarter and the guidance for the fourth quarter I'd like to talk about sensor model a bit.

You've announced a lot of partnerships and joint marketing efforts.

Are you seeing any early trends.

Some of our customers of these micro controller Oems.

Trying out sensible using.

Using node or buying it and if so.

And what types of use cases, and how frequently are they doing it.

Well the the reception from these microcontroller partners has been really positive, especially I would say the last three that we brought on board they've been very active in terms of integrating sensible into the sales and marketing.

Outreach that these companies are doing in terms of seminars webinars et cetera.

The last three being.

Microchip Silicon labs and on semi.

Those have resulted in immediate opportunities coming in.

Especially if you think about it the more we get the application engineering groups trained at these microcontroller companies that can really be spokes people out to the customer bases, they're looking to solve problems. So.

So we have seen immediate opportunities coming in not just for the the lower tier a less expensive version, but we actually have signed contracts with customers now that are noteworthy names that you would recognize.

To implement AI for their systems, and so we're going through those sort of development phases now with the customers and the and I think thats speaks well of the future. The more that these other companies really get familiar with the tools and see how it can solve problems the more opportunities we're going to get so where we're really pushing hard on these these most recent three and I will say it.

From a revenue point of view, we don't breakout sensible yet as a percentage of revenue because it's not material.

I think our internal forecast for Q4 or Q3 is to double revenue a quarter on quarter for sensible I'm not going to give the absolute number but I can show that there is progress there in terms of growth and it is really coming from these new.

Microcontroller partners. The other thing I'd say two records if you step back for a second a lot of people asked why are you working with all these different microcontroller partners.

And sort of lumpiness to the arm analogy right arm.

The microcontroller and apps processor IP core company. They got so big because so many engineers get started to get familiar with the tool change that they wrapped around.

The arm core and they've got familiar with that to the point that they're talking to their friends and it's just sort of expense and they've got to be the point, where that was the de facto standard in terms of like what you look for with arm tool chains and are in a micro July of course. So the point of that story is that I think the more people that we get familiar using sensible as the AI tool kit on all these different.

Microcontrollers with their massive installed base.

But we want to become like the arm of the AI software land with a sensible toolkit and you only do that if you can be running on People's processors that are already being used and the key thing here is that central is the software package. So it can be installed on anybody's system. That's already out there that has an internet connection is a sensor that you want to add more intelligence to right.

So if you think about it at massive installed base, it's huge for us to be able to tap into that and if you think about this too not just 32 bit processors Microchip has processors to go all the way down to a bit and that's why they liked sensible because they span that range. So I think from a technical point of view sensible has got good breadth and now with the go to market partners that it really multiply.

Is that.

Okay.

Yesterday at its Investor Day, Qualcomm gave a very bullish outlook for its edge.

Semiconductor business.

Through the next three or four of its fiscal years.

Ending in 2024.

And.

Most of its growth coming from industrial and automotive applications.

Are you seen increased interest through your open source FPGA.

In areas.

Like industrial and higher use cases and just.

Small battery powered edge.

Ices that might not have access to power.

Yeah, I think we are we are seeing opportunity for that in fact.

I would venture a guess that the I P. O P. J IP related revenue we have right now are the ones that we've talked about none of them are battery powered their power sensitive, but theyre not battery powered.

Which is the traditional sort of wheelhouse of F. P. J. So if you just step back and look at the general market.

Yeah.

I'm glad to hear Qualcomm thing, so I think that yeah.

There's a lot of investors and they'll say one is edge computing really going to be here and not just some people's Powerpoint, but I think it's qualcomm's going out there and saying it.

There's probably something there and we're I think we're gonna be right. There with the fact that we have the S. P. J, which is good for embedded FPGA applications, and we have sensible, which is great for adding some intelligent software to those same systems.

Okay. Thank you Brian I appreciate the color on.

Where do you see your business heading thanks, Thank you Rick.

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

Well, thanks, Brian for taking my questions apologies, if others allowed ambient noise into the airport here also wearing a mask. So you can hear me.

Sorry about that.

First just a quick question your fourth quarter sales number for the guidance did I hear that right at $4 8 million.

No not for $3 9 million.

Okay.

That allowed herself sorry about that okay. That's helpful. And then second of all last quarter, you had mentioned something.

Electric strategic initiatives announced back in February and that that situation had been funded I didn't hear any comments on your prepared remarks I'm, assuming that's not the case can you give any more detail about status, they're still working on it just any any sale would be great.

Yeah, it's definitely still working on it.

Actually been in discussion with them probably every other week since February.

And they're still trying to pull that pull.

Well that funding together to get that thing closed, but we're we're definitely still actively discussing with them in.

Modifying our approach with it the technical specs and so on.

But it has not it has not closed yet.

Okay still active but thanks for that.

Yes, okay.

Our next question you talked about growth in 2022 equal to or perhaps higher than what you're forecasting at the midpoint for <unk>.

Like for your sales guidance this quarter.

Kind of talk about some of the drivers here, where you're going to see.

More growth I think we can all we can all guests, but I'd love to get your characterization of where that where that growth comes from.

Yeah, I think so like we said in the prepared remarks first half on the mature side I think you can just run out flat 2022 from the second half of 'twenty, one there should be growth in the U S. S. III.

From the continued use and the smartphones like I already mentioned running out through 2023 in fact.

And then some of the other wins that we've been working on with industrial Iot and consumer.

There.

Could it be some increase in sensible obviously through these microcontroller partners.

Hopefully getting to the point, where we're breaking that out as a separate business, which means 10% of our revenue.

And then of course, the big driver that we see for next year is on the E. S. P. G. A IP and other services aspects related to that.

That should probably be the single largest segment that we have next year.

Okay.

Okay excellent.

I guess that leads me into my next question you were talking about the pipeline you characterized it as tens of millions of dollars.

I think you've said that many of these deals can be at least initially can be.

I'm, assuming we're talking about very low seven figure deals here to start with so I wonder if you can I mean can we just do that simple math here and $7 million or so for deal at tens of millions. It means there's a number of.

A few to several dozen of those sitting out there is that a fair way to think about the pipeline.

I'd say, there's less than a dozen but I would pick up the value per opportunity to be more than just $1 million.

Okay.

A few million, perhaps or a couple of million each.

Okay.

Okay.

Alright.

This is probably my last question here is how to think about the dynamics here that got you to the press.

Embedded FPGA license $2 million, one and I think youre attributing a good deal successor to the Australia tool.

I understand this was to some degree developed with an academic partner.

And you said Theres, a competitive situation, where there's a deep evaluation of other competitors.

The other competitors use this tool here and does that limit your competitive advantage or can you just kind of discuss those dynamics.

Yeah, I don't want to give too much away from the competitive point of view on the call, but what I can say is that.

Australis, and we've been public about this australis is based on a project at the University of Utah called open FPGA that was actually a DARPA funded program.

The things that we're bringing on top of the open source academic tool I think can't be.

Can't be overstated, where we are we're bringing a lot of our architecture background. This kind of goes back to Judy's question why do people buy from quick logic.

And this is this is also a good.

Segue here into the proxy or so if you think about software for a second.

Linux is open source right.

And people download bit X and they use it for free and a hobbyist fashion, but if anybody wants to bet their careers at their company or their products at their company. They are not going to bet. It on somebody that they can just download from from Github, they're going to want to work with a company that has a product and a support strategy.

On top of what is open source and free and that's exactly what we're trying to do.

With the open FPGA and the Australia platform, So think of us as trying to become sort of the red hat.

For Fpga's open source FPGA is where yes, there's some open source technology available, yes that helps with automation is.

Is that by itself the quality reliability and the die size optimizations that you would expect from a commercial product with an entity to support it.

Need to have that added to that and that's exactly what this three decades of experience does for quick classic and we bring to that table. So good other FPGA companies start to adopt the open source sure. It's in the open source, but they'd have to go through the two year cycle of learning that we went through in this remember Australia was not born overnight. This is something that this has been in the works for almost two years.

Now.

And we finally felt at the time was right for us to be able to use it in a commercial fashion and trust that the result of that we're going to be something that we could standby with our customer and it has.

But it was a long road to get there and I think anybody that's trying to use it in a commercial sense. We go through the same learning curve. So I think we've built a pretty good.

Missile competitive moat, and we're not stopping there we're going to we're going to keep going with different things that we would like to do.

On top of that in terms of Astellas, that's not going to be open source.

Okay. That's excellent excellent points you, Brian. Thank you very much but I think that's all my questions. So I'll jump out of line congratulations on that integrate into the year.

Thanks, Richard I appreciate it.

Our next question is from Martin Yang with Oppenheimer <unk> Co. Please proceed with your question.

Yeah.

Hello, Good afternoon, Brian Anthony.

My first question is a wafer purchase commitment.

That number has been because it's been growing and was.

Quite large comparing on a year over year basis can you maybe help us understand what does it mean for your business what does it say about the market supply demand or customer engagement.

Well as I was thinking they were prepared remarks, Martin with the supply chain. The way. It is it really behooves us to make sure that we are.

Buying ahead of the actual shipment that we would normally be doing.

Cause we just can't handle any disruptions in the supply chain that are worse than what they already are so we are working with our customers to give them longer lead times that they have to abide by.

We can go off with some confidence and go to the foundries and the assembly houses and get the get the allocation for next year and the following year and then be you get the wafer starts when we need them.

So we're managing that and as I said, you may see some uptick in our inventory in fact, because we want to just have a little bit of buffer to make sure that we can make sure that we ship product to customers that need it.

It's probably no different semiconductor companies are doing right now.

Yeah, Yeah. It makes sense. My next questions is Australia is talk about this.

This platform is very.

Useful to facilitate design some new foundries in your process.

How does it help with customers that are.

Or use implement that's for older or more familiar process.

Yeah.

Well it can help in the sense that if a customer comes to us and they say hey, I would like an E. S. P. J I T core on X Y Z process node at ABC foundry.

We can do that within about a quarter.

From the time that we get access to the PDK and I know right now there's a huge supply chain crunch, especially on the mature node. So we can we can handle basically any of those requests in a very timely manner. So it gives a lot of options for customers.

To be clear quick largely because of the run is the one that runs the australis tool, we don't give that to customers.

There's a lot of nuance into how that works, but we effectively work with the customer and what they need we get we will work with the foundries to get the libraries that we need and then we can create the course that the customer wants and deliver that to them along with by the way. The F. P. J use which will support that they they would ultimately need to program that S. P. J.

Got it.

Most of my questions have asked before so the last thing I wanted to double check is that you.

You do expect the licensing and sulfur.

Revenue as a percentage of total revenue to be higher in 'twenty to over 21.

Yes, we do.

Okay got it thanks.

No problem.

Yeah.

Any other questions Ryan.

That's it that's it for me Okay great.

Yeah.

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

Thanks, operator, thank you for participating in today's call and your 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 fourth quarter fiscal year 2021 results have a great day.

This concludes today's conference and you may disconnect. Your lines at this time. Thank you for your participation.

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